The ID card plan which Tony Blair has said is central to tackling terrorism could be scaled down as part of a "face saving exercise", leaked documents say.
The laws needed to introduce ID cards were passed this year
Officials say ministers are setting themselves up for failure and are "ignoring reality" by pressing ahead.
The Sunday Times published documents suggesting ministers are engaged in a rethink, but the Home Office denies claims the plans are being ditched.
Conservative spokesman David Davis says the whole scheme should be scrapped.
But a Home Office spokesman said: "We're still committed to the introduction of the scheme.
"Any suggestion that we have abandoned ID cards is wrong. We've always made it clear that the introduction will be staged."
According to weekend press reports, ministers are being forced to rethink the plans in order to meet the deadline of phasing in the cards by 2008.
Shadow home secretary Mr Davis said: "These are all the classic signs of a Whitehall IT project about to go disastrously wrong.
"These civil servants can see plainly what the government refuses to accept.
"The prime minister's obsession with this project will actually weaken our security and cost at least £20bn."
Nick Clegg, the Liberal Democrats' home affairs spokesman, said Mr Blair had been warned of the potential problems with ID cards.
"This has now all been confirmed by government officials themselves," he said.
"How long will this government continue to live in denial by ignoring the mountain of doubts about Tony Blair's harebrained ID cards scheme?"
Searching for spin?
In emails quoted by the newspaper, Peter Smith, acting commercial director at the Identity and Passport Service, reportedly says the organisation is planning for the possibility that ID cards could be "canned completely".
David Foord, ID cards project director at the Office of Government Commerce, is quoted as questioning whether the scaled-down version of the project was "even remotely feasible".
"I conclude that we are setting ourselves up to fail," he is quoted as saying.
Shami Chakrabarti, director of civil rights organisation Liberty, urged the government to "stop searching for a spin to save ID cards".
"If the government has discovered ID cards to be a hideously expensive white elephant it should say so and spend the money elsewhere and we will all applaud," she said.
And campaign group NO2ID's national co-ordinator Phil Booth described the system as "a complete sham".