Tighter UK and European regulation over some aspects of nanotechnology -manipulation of molecules - is needed to ensure its long-term safety.
Tiny carbon nanotubes can be used to make strong composite materials
A Royal Society and Royal Academy of Engineering report said that there was no need to ban nanoparticle production.
But more formal research of them was "urgent". Nanoparticles should also be treated as "new chemicals", it said.
Welcoming the report, science minister Lord Sainsbury said the government response would come by the end of 2004.
Super-fine particles are already being incorporated into a number of cosmetics and composite materials to improve their performance.
The products undergo tests by the manufacturers. But Professor Ann Dowling, chair of the working group that produced the report, said it recommended these test results were made more public.
"It is important that the regulations are tightened up so that nanoparticles are assessed, both in terms of testing and labelling, as new chemicals," she said.
New substances produced at the nanoscale should also be approved by an independent scientific safety committee before they being used in consumer products, such as cosmetics.
Although most areas of nanotech pose no new risks, manufactured nanoparticles can cross over to areas of the body that larger particulates, which humans are exposed to every day, cannot reach.
Any long-term damaging effects are unknown.
Professor Ken Donaldson, professor of respiratory medicine at the University of Edinburgh, who gave evidence to the working party, said he was not surprised by what was said.
"There should be better understanding of how nanomaterials might cause harm, but we don't really know enough about the mechanism by which they might cause harm," he told BBC News Online.
"There are existing tests for particles and chemicals, so there is a system there - it is just that these systems are really not designed for nanoparticles so we just need to change the protocols," he said.
The research programme the report also wants in place would be funded by the UK government, academic research bodies, as well as industrial and EU partners.
The report added that there should be immediate restrictions on the use of nanoparticles in environmental clean-up operations.
"We recommend that the release of large quantities of nanoparticles for the cleaning up of soils be prohibited until it is shown that the net benefits exceed the risks," Professor Dowling said.
SOME CURRENT NANO USES
Disk drives with nanometre layers to increase data storage
Lipid (fat) globules for anti-cancer drug delivery
Stain repellent/waterproof textiles
Anti-fungal sprays and fabrics
Novel coatings, paints and pigments
Source: Inst of Nanotechnology
There also needs to be more stringent workplace regulations to protect those coming into contact with such new substances in industry and academia, the report said.
The independent study, commissioned in June 2003 to identify potential environmental, health and safety, as well as ethical and social impacts of nanotechnology, stressed that the emerging science could bring enormous benefits.
It said that there may be hazards with new materials, but that tackling regulation issues at such an early stage was vital.
The report's recommendation that nanoparticles and nanotubes - super-strong carbon structures - be treated as new chemicals under existing UK and European legislation allows for more appropriate safety tests and labelling measures.
It stressed it was important the public be given more information about what was in consumer products.
The working party said there was no need for a new regulatory body, but regulation would fall within existing frameworks and budgets on hazardous materials.
Jim Thomas, from the campaigning ETC (Erosion, Technology and Concentration) Group told BBC News Online he welcomed the report's findings.
"Obviously, it is really good to see a focus on the toxicity issue," he said.
"A year ago, Lord Sainsbury said there were no such issues."
He added the call for better labelling of products was "sensible" as was the recommendation that manufactured nanoparticles be treated as new materials.
But, he said, the impact and fair use of such new materials on developing countries seemed to have been left largely unaddressed.
Scientists working in the fields which nanoscience touches broadly welcomed the report's findings.
Professor Richard Jones, from the University of Sheffield, said the debate now needed to focus more on social and ethical issues.
"Debate now needs to move on to some bigger, longer term, questions: How we can use nanotechnology to overcome the world's pressing environmental and health problems while staying alert for the new ethical issues that such a powerful technology will potentially raise."
But the Trade Union Congress responded by calling for the production and use of nanoparticles to be carried out in a contained process so that employees were not exposed to potential health risks.
Millions of nanoparticles are inhaled on a daily basis by humans.
The difference with newly manufactured nanoparticles lies in the possible effects of the unusual properties that molecules display at such a tiny scale.
At the nanoscale, materials can be "tuned" to display some unusual properties that could be exploited to build faster, lighter, stronger and more efficient devices and systems.
Advocates say nanotechnologies could transform computing, electronics, medical research, and the energy industries.
But the science has been dogged by hype and predictions that experts in the field say are just pure fantasy.
The most infamous of these is the "grey goo" scenario.
This envisages swarms of self-replicating robots, smaller than viruses, multiplying uncontrollably and devouring Earth, turning it into a grey mush.
The idea has been featured by popular writers, and it received much publicity when Prince Charles entered the nanotech debate.
SOME POTENTIAL USES OF NANOTECHNOLOGIES
1 - Organic Light Emitting Diodes (OLEDs) for displays
2 - Photovoltaic film that converts light into electricity
3 - Scratch-proof coated windows that clean themselves with UV
4 - Fabrics coated to resist stains and control temperature
5 - Intelligent clothing measures pulse and respiration
6 - Bucky-tubeframe is light but very strong
7 - Hip-joint made from biocompatible materials
8 - Nano-particle paint to prevent corrosion
9 - Thermo-chromic glass to regulate light
10 - Magnetic layers for compact data memory
11 - Carbon nanotube fuel cells to power electronics and vehicles
12 - Nano-engineered cochlear implant