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Britain is planning to implant "machine-readable" microchips - like those used on pets - under the skin of thousands of offenders as part of an expansion of electronic tagging.

Because of concerns about the security of existing tagging systems and prison overcrowding, the British Ministry of Justice is investigating the use of satellite and radio-wave technology to monitor criminals.

But, instead of being contained in bracelets worn around the ankle, the tiny chips would be surgically inserted under the skin of offenders in the community, to help enforce home curfews.

The "radio frequency identification" tags, as long as two grains of rice, can carry information about individuals, including identities, address and offending record.

The tags, labelled "spychips" by privacy campaigners, are used to track dogs, cats, cattle and airport luggage, but there is no record of the technology being used to monitor people.

A senior Ministry of Justice official said the department hoped to go even further, by extending the geographical range of the internal chips through a link-up with satellite-tracking similar to the system used to trace stolen vehicles.

"All options are on the table, and this is one we would like to pursue."

The move is in line with a proposal from the Association of Chief Police Officers that electronic chips should be surgically implanted into convicted paedophiles and sex offenders to track them more easily, preventing them from going near "forbidden" zones such as primary schools.

"We've wanted to take advantage of this technology for years, because it seems a sensible solution to the problems we are facing," a senior minister said. "Its time has come."

The Independent on Sunday reports that ministers have been assessing the merits of cutting-edge technology that would make it virtually impossible for individuals to remove their tags.

The tags, injected into the back of the arm, consist of a glass capsule holding a computer chip, a copper antenna and a "capacitor" to transmit data stored on the chip when prompted by an electromagnetic reader.

Details of the scheme provoked an angry response from probation officers and civil-rights groups.

"If the Home Office doesn't understand why implanting a chip in someone is worse than an ankle bracelet, they don't need a human-rights lawyer; they need a common-sense bypass," said Shami Chakrabarti, director of the Liberty rights group. "Degrading offenders in this way will do nothing for their rehabilitation."

Britain has been forced to review sentencing policy amid serious overcrowding in the nation's jails, after the prison population soared from 60,000 in 1997 to 80,000 today.

New Zealand has also faced a jump in prison numbers. A Ministry of Justice forecast last year showed the average monthly prison population was expected to go from 7656 in June 2006 to 9028 in June 2014.

However a Department of Corrections spokeswoman said last night that it had not looked at the British scheme and had no plans to do so in the foreseeable future.