Microscopic vehicle-tracking devices pioneered in the North could soon consign the motorist's tax disc to history.

Newcastle University is developing a pinhead-size device dubbed "smart dust" which could be implanted in every lamppost or white lines on the roads.

With a similar device in cars it would be possible to keep constant tabs on vehicles.

The Government is looking to replace the current tax disc system and the new device would allow drivers to be charged according to how much they use their vehicles and how much they travel at busy times and on congested roads.

Full-scale trials begin this month in Newcastle and will last until June.

Professor of Transport Phil Blythe, who runs the university's transport operations research group, said: "There is a real opportunity for Newcastle to become a world leader in this technology. The idea of replacing car tax is where the real excitement lies.

"Most European countries are looking for some sort of road-user charging and the potential is massive. Newcastle is where this technology has been forged and it could really put the North-East on the map."

The smart dust could also have a number of other uses. Prof Blythe said it could measure pollution and when a certain level had been reached then traffic could be restricted.

The device would also pinpoint a vehicle's position and allow traffic and congestion information relevant to the location to be fed to the driver. Prof Blythe is working with the university's Dr Alan Tully, of computing sciences, on the device.

The university's leading nanotechnology centre is involved in miniaturising the equipment.

Next month, representatives from 40 European countries will arrive in Newcastle for a major conference on the new technology, organised by the Department of Transport and the university.

Prof Blythe has already worked on London's congestion charging system. But this relies on video checking of vehicle plates which would be complex and costly to extend.

It is hoped that the smart dust system would be commercially viable in about seven years' time.