The RFID tags, about the size of two grains of rice, would be injected under the skin and could be scanned by a reader.
There are also proposals to link the RFID tags to a larger GPS device to monitor the location of high risk prisoners.
"We have wanted to take advantage of this technology for several years because it seems a sensible solution to the problems we are facing in this area, " a senior minister told the Independent on Sunday.
"We have looked at it and gone back to it and worried about the practicalities and the ethics. But, when you look at the challenges facing the criminal justice system, its time has come."
The Ministry of Justice has confirmed that it is considering the proposal as part of plans to modernise the prison system.
Human rights groups have pounced on the proposal, however, describing it as "degrading".
Shami Chakrabarti, director of Liberty, said: "If the Home Office does not understand why implanting a chip in someone is worse than an ankle bracelet, they do not need a human-rights lawyer they need a common-sense bypass.
"Degrading offenders in this way will do nothing for their rehabilitation and nothing for our safety, as some will inevitably find a way round this new technology."
The RFID proposals are designed to address problems with the existing tagging system which uses a transmitter strapped to the ankle.
Over 2,000 of the 17,000 offenders fitted with the ankle tags have escaped by tampering with, or simply cutting off, the device.
Curfew breaches for the past two years are up 283 percent, and further development of the system has been halted until these problems can be sorted out.
Harry Fletcher, assistant general secretary of the National Association of Probation Officers, stated that the RFID proposal would be unhelpful.
"This is the sort of daft idea that comes up from the department every now and then, but tagging people in the same way we tag our pets cannot be the way ahead," he said.
"Treating people like pieces of meat does not seem to represent an improvement in the system, which works well enough as it is.
"Knowing where offenders like paedophiles are does not mean you know what they are doing."
The UK has been moving faster than most in the use of RFID, including plans to tag exam papers.
Similar schemes in the US have been banned, and there are fears about the health risks and security of RFID implants.
UK considers RFID tags for prisoners
By Iain Thomson on Jan 15, 2008 7:28AM