Retailers stand to lose an even greater share of their tobacco sales to the illegal market following an alarming rise in the number of so-called 'cheap white' cigarettes being sold for as little as £2.50 a pack on Britain's streets.

The smuggled cigarettes, which unlike counterfeit products do not attempt to replicate legitimate brands, but often use similar branding, accounted for 36% of all large-scale tobacco seizures made by HM Revenue and Customs in 2008 - a 23% increase from 2007.

The figures, which came to light as government proposals to increase restrictions on legitimate tobacco retailers are debated in the Commons, also show that cheap whites are rapidly closing the gap on counterfeit products, which accounted for 51% of seizures in 2008.

North London newsagent Mahendra Jadeja said it was ridiculous that responsible retailers were facing a ban on tobacco displays while criminal gangs were free to "make a mockery of the law".

"Cheap whites are clearly available to underage smokers, so the government needs to tackle this problem," he said.

Bob Fenton, security liaison officer at the Tobacco Manufacturers Association (TMA), said he had seen a dramatic increase in the volumes of cheap whites being sold at car boot sales, markets and racecourses.

"Cheap whites are being sold for as little as £2.50 for 20, and with people looking to save money in the recession, they pose a real threat to legitimate tobacco retailers," he said.

And he added that the government proposal to ban the display of tobacco products in stores was likely to aggravate the problem.