The proposal was one measure outlined in the pre-budget report
An environmental group has voiced its dismay over the government's decision to limit the proposed increase in excise duty on the most polluting cars.
Friends of the Earth said Chancellor Alistair Darling's decision to only increase the duty by £30 instead of £90 was an "incentive to pollute".
However, Mr Darling also announced that people who bought the least polluting cars could pay up to £30 less in duty.
The proposals were one of the measures outlined in the pre-Budget report.
Speaking in the Commons, the chancellor said: "In the last Budget, I announced I was going to take this further by increasing the number of bands for Vehicle Excise Duty (from 2010).
"In the original proposal, some cars would have seen increases of up to £90. Instead, I now propose that the more polluting cars will see duty increased, but up to maximum of £30," he told MPs.
Tim Jenkins, Friends of the Earth UK's head of economics, said reducing the duty increase to just £30 would not act as a deterrent.
"The government knows that for the top band (of Vehicle Excise Duty), the increases need to be much larger," he told BBC News.
"By reducing it to this level, it completely removes the incentive for people to buy smaller, more fuel efficient cars."
The announcement comes just days before the Climate Change Bill receives Royal Assent.
The bill, seen as the flagship of the government's environmental policies, legally binds future governments to cutting CO2 emissions by 80% from 1990 levels by 2050.
Dr Jenkins said that the proposals for limiting the increase in Vehicle Excise Duty went against the grain of the bill's aims.
"The action the government has taken at a time when it should be encouraging spending that reduces emissions has given the signal for people to do the exact opposite."