Business Secretary Peter Mandelson and Transport Secretary Geoff Hoon announced the initiative in Scotland as part of a 250 million pound scheme to cut emissions and at the same time help the struggling motor industry.

"Cutting road transport CO2 emissions is a key element to tackling climate change," said Hoon. "Less than 0.1 percent of the UK's 26 million cars are electric, so there is a huge untapped potential to reduce emissions.

"The scale of incentives we're announcing today will mean that an electric car is a real option for motorists."

Drivers will receive between 2,000 and 5,000 pounds towards buying their first electric and plug-in hybrid cars when they hit the showrooms in 2011.

Electric cars cost an average of 12,000 pounds, but go up to over 80,000 pounds for high-performance models.

The plan also sets aside 20 million pounds for charging points and infrastructure to develop a network of what the government calls "electric car cities".

Last week, London Mayor Boris Johnson announced a plan to introduce thousands of charging points across the capital.

A national demonstration project will be rolled out, giving some 200 motorists in the UK the opportunity to drive a cutting-edge car and give feedback to the industry.

"We want the British motor industry to be a leader in the low carbon future, and government must direct and support this, through what I call new industrial activism," Mandelson said.

The two ministers were planning later on Thursday to drive a new Mini-E electric vehicle in Dunfermline in Scotland in a demonstration of the technology available.