Satellite tracking technology could provide the basis for a 'prison without bars', potentially cutting prison overcrowding, and expensive accommodation.
Serial offenders will be monitored by satellite technology.
Under plans announced on Monday, the 5,000 most prolific offenders in England and Wales are to be tagged and tracked using the global positioning system (GPS).
The satellite technology means criminals could be tracked down to the nearest 100 yards.
According to a spokesperson at Securicor Justice Services, a supplier of criminal tracking devices, this is a much "higher lever" of tagging than is currently used.
Electronic tagging, which the government currently relies on, is only able to set off an alarm when the offender breaches a curfew.
So for example if a criminal walks out of the house after their curfew, say 2100, an alarm will sound at a central control room, where operators then notify police.
However under this system there is no way of knowing where the criminal has gone.
But with GPS, the person can be tracked within the community, 24 hours a day.
"For the persistent offenders, you could say 'you can't go near a certain council estate'. Then if they breach that and go to the council estate, an alarm goes off at a central control room immediately, and the police are notified," a Securicor spokesperson told BBC News Online.
Operators at the control room, which would be run by the private company providing the device, would be able to track the person down to the nearest 100 yards, giving an accurate reading of the criminal's location.
Home Secretary David Blunkett told the BBC Radio Four's Today programme that a "prison without bars" could be created, where "first-time low-level non-violent offenders would actually be tracked rather than sent to short-term prison sentences".
The scheme is likely to be similar to one already underway in Florida, US, where 3,000 criminals are monitored by GPS.
Each criminal carries an electronic anklet, which is linked to the GPS system.
Their movements are traced to make sure they do not enter restricted areas such as schools.
The scheme is run by Pro Tech, one of the leaders in satellite tracking technology.
Pro Tech boast that tracking costs only a fraction of what it does to keep someone in prison.
A Home Office spokesperson told BBC News Online a pilot of the devices will be trialled in three areas late this summer.
However the exact device which will be used on criminals has not yet been finalised.