I was walking into Fulham Broadway underground station a couple of years ago when I saw police officers holding dogs on leashes, encouraging them to sniff the crotches of passing commuters. What, I asked one of the policemen, was the purpose of this operation?

"I can't say," he replied.

I explained that I was a lawyer with a professional interest in crime. He looked at me with something approaching interest. "Well, you know that most crime is caused by drugs?"

"Yes," I lied.

"These dogs can smell the smallest trace of a drug on a person. Once the dog has picked up a scent of drugs on them, we have the right to search them. If we find drugs on them, we can then search their homes and in their homes we usually find all manner of incriminating articles."

Who needs a warrant when you've got a dog? Olfactory surveillance - the monitoring of personal odour - is on the increase. The number of dogs trained in the detection of criminal suspects and substances is growing. But dogs aren't the only tool envisioned for the future. The Home Office is known to have funded at least one study into the feasibility of releasing swarms of trained bees to search out target odours. The US has similar plans for moths, bees, wasps and cockroaches, and Russia has cross-bred jackals with dogs for an enhanced sense of smell. Even yeast has been genetically manipulated to react to molecules of interest to the security services. Companies across the globe are designing and touting "electronic noses", machines that seek to mimic the mammalian sensory apparatus, in an attempt to satisfy new security demands.

"Headspace" (a term borrowed from the beat generation, where it connoted psychological privacy) is the technical term for the area surrounding an object or person in which their odour can be analysed. But odour detection is not limited to the discovery of drugs and explosives. Scientists and electronic nose entrepreneurs claim headspace analysis can reveal everything from the substances people have been in contact with and their emotional state, to their personal identity and ethnic origin. Although the science behind this field is nascent and the scientific validity of such claims is hotly disputed, they are gaining in stature. Researchers believe the unique smell that we each emit is tied to the makeup of the major histocompatibility complex, a group of genes found on the surface of T-cells that are crucial to the immune system. Several police dog handlers attribute their dogs' knack for identifying criminals to an ability to detect the scent of fear emitted by the guilty, and a synthesised version of this scent is available as a training aid. Scientists are undertaking research into how potential aggressors - or even, for instance, people with schizophrenia - might be identified by the odours they emit. In the 90s an electronic nose company based in the UK was approached by the South African police for the "odour signature" of black people. A company representative told me they refused to supply it, but could have done. He said that ethnic signatures are quickly obtainable by finding patterns between the molecules present in the headspace of different ethnic groups. He added that his electronic nose had already been trained to detect at what stage a woman was in her menstrual cycle, "just by sniffing her from the other side of the room".

Once referred to as the "neglected sense", the science of olfaction is experiencing a resurgence of interest and researchers predict that, in the near future, our knowledge of it will rival that of the visual sciences. Biologist Lyall Watson outlines the pivotal role played by the olfactory system in his book Jacobson's Organ and the Remarkable Sense of Smell: "There is a general and universal system of chemical communication in which all living things are involved. The result is a coordinated ecological mechanism for the regulation of who goes where, and how many can afford to do so." The security services want to tap into this primordial information, then exchange and use it in border controls and the wars on crime, terrorism and antisocial behaviour. Watson predicts that a heightened olfactory consciousness will enable us to "get to know who the good guys are". The security services seem to think the science of olfaction is already sufficiently advanced to enable them to do this.

Last summer, Der Spiegel magazine revealed that the German police had been collecting human scents from political activists to enable their dogs to trace persons they believed might try to violently disrupt the G8 summit. China has established a "scent bank" of odours sampled from criminal suspects and crime scenes. According to a document leaked to the Observer, GCHQ, the British intelligence agency, has been evaluating the merits of odour as a means of personal identification.

Common law jurisdictions across the world are struggling to come to terms with this sensory mutation of police searches and interrogations. The case law is strewn with conflicting decisions on the extent to which olfactory surveillance requires regulation. So far, New South Wales in Australia is the only state to have put it on a statutory footing. The Law Enforcement (Powers and Responsibilities) Act 2002 specifies the limited circumstances in which drug detection dogs can be used and requires regular parliamentary review of the exercise of these powers.

The supreme court of South Australia dismissed the argument that a dog "sniff" is an invasion of privacy on the basis that odours emitted from a person are routinely exposed to the perception of the public at large. But this reasoning ignores the fact that odour detection "tools" - such as trained dogs and electronic noses - enable the police to perceive information beyond the range of the human senses, placing them firmly within the category of "new surveillance" techniques first identified as a threat to legal regulators by Gary Marx, professor emeritus of sociology at the Massachusetts Institute of Technology. According to Marx, in extending the senses, new surveillance "challenges fundamental assumptions about personal and social borders that have been maintained not only by values and norms and social organisation but by the limits of technology to cross them". The threat is obvious: these new methods promise to render traditional investigatory techniques obsolete.

The New South Wales supreme court refused a request in 2001 to regulate olfactory surveillance on the basis that a dog's nose is no more than "an extension of the police officer". But this is a dangerous argument that ignores the privacy issues linked with the expanding range of information sought by olfactory surveillance, as well as the invasive threat of other technologies under development. We are right to fear the new surveillance, even when we have nothing to hide, because it reaches beyond the rule of law, stripping us of our privacy (the right to determine the extent to which we release personal information about ourselves) and leaving us vulnerable to arbitrary state interference.

In 2001, the US supreme court recognised this new threat to privacy. In Kyllo v United States, the police had aimed a thermal-imaging device at Danny Kyllo's residence to detect heat emanations associated with high-powered marijuana grow-lamps. The court held that when the police obtain by sense-enhancing technology any information regarding the interior of a home that could not otherwise have been obtained without physical intrusion, it constitutes a search. The court observed that this would ensure preservation of that degree of privacy and protection from government intrusion that existed when the US constitution was drafted. Justice Souter has since stated that "if constitutional scrutiny is in order for the imager, it is in order for the dog".

In Britain, there has yet to be any challenge to the legality of sniffer dog operations. The Association of Chief Police Officers (Acpo) is adamant that a sniff does not amount to a search and that an indication from a trained dog amounts to reasonable grounds of suspicion for a stop and search. Acpo reasons that because the dog is deployed to "scent the air surrounding an individual person" and indicate the presence of the smell "in the close vicinity of an individual" no search of the person takes place. In this way, Acpo distances the subject from the source of the scent, to justify its denial that the sniff amounts to a search - and then re-links the subject to the scent to justify a tactile search.

Acpo guidance on the use of sniffer dogs concedes that a police-dog sniff could amount to a search if a person is "funnelled" past the dogs. The guidance clearly states that the police should not funnel people past a sniffer dog because officers have no powers to insist that a member of the public submit to a dog sniff. But commuters, confronted with police dogs at the top of escalators, are faced with little choice on exiting a station. "We don't have any power to tell people to walk past the dog," one senior dog handler conceded. "But we can take advantage of the natural environment." Officers treat attempts to evade a dog as grounds of reasonable suspicion for a stop and search.

Smell has historical associations with sin, which may explain why some people find the experience of being sniffed by a police dog offensive. The devil has often been described as identifiable by his "sulphurous stink". In the late 1500s, odour was used to identify witches in Europe. Odour remains a deeply personal attribute, which most of us seek to disguise. Patrick Süskind sums up the accusatory nature of a nasal interrogation in his novel Perfume: "All at once he felt as if he stank ... The child seemed to be smelling right through his skin, into his innards. His most tender emotions, his filthiest thoughts lay exposed to that greedy little nose ... "

The suspicion generated by an alert from a sniffer dog is difficult to dissipate, as the investigation into the disappearance of Madeleine McCann and the supposed "scent of death" illustrates. Three months after Madeleine's disappearance, dog handler Martin Grime (then working for South Yorkshire police, now for Jersey police on a freelance basis in the search for human remains at Haut de la Garenne) flew out to Portugal to help review case evidence. He was accompanied by his "advanced dog" Eddie. Up until then, corpse-detection dogs had only ever been used in this country to help the police to locate human remains. Eddie the dog reportedly reacted to Mrs McCann's clothing. Almost overnight, the McCanns turned from victims into suspects, and the crowds who had surrounded them in support began to boo and jeer at them in the street. Seemingly as a result of the dog's reactions, the Portuguese police made the McCanns official suspects.

However, the accuracy of sniffer dogs is hugely exaggerated in the popular consciousness. Even the courts in England and Wales appear to have taken the reliability of the dog for granted. In Devon in 1999, the police were called to a house because a slice of fruitcake had been stolen from it. The police attended with a dog. The dog sniffed around the kitchen area and then appeared to follow a track 100m away from the house. The dog stopped and indicated at an abandoned car, in which a homeless man was sleeping. No fruitcake crumbs were found on the man or in the car. The man was interviewed and denied involvement. He said he had been sleeping rough in a barn. It was cold and he had found the car unlocked. He was convicted on the basis of the dog indication and inferences from his decision not to give evidence in court. In 2000 the Court of Appeal upheld his conviction for burglary.

In the US, scent line-ups are used. People have been convicted of robbery, rape, and even murder when the primary evidence against them is, in effect, a bark.

In fact, remarkably little is yet known about how the sense of smell works and there is a shocking shortage of reliable empirical research on the accuracy of detection dogs. The only substantial body of research was conducted in Australia. The Privacy Ombudsman of New South Wales reported its review on the use of drug-detection dogs to parliament in 2006. His research revealed that 74% of those searched following an indication by a dog were found not to be in possession of illegal drugs. This statistic adds weight to Justice Souter's statement that the "infallible dog" is a "legal fiction".

While many police dog handlers appear to hold a genuine belief in the "magic powers" of the dog (Russell Lee Ebersole was convicted of fraud for selling police officers in the US dogs said to be able to indicate which substances they were detecting by pointing their noses at letters of the alphabet), others are even more sanguine. A senior police dog handler told me that the dog's heightened olfactory sensitivity is not its only asset: "Admissions flow out of people indicated like a gush of air - they're so relieved not to have anything on them." A police sergeant who has received national recognition for his drug work laughs at the exaggerated portrayal of drug dogs' abilities in the street addict's mind: "They think they can detect drugs from 300m away!'

For now, the principal advantage of olfactory surveillance to police forces may reside in the nose's mysterious reputation for infallible detection. The police and security services are constantly on the lookout for technologies that can be used to justify hunches, coerce suspects into confessing and legitimise the use of force with something that can be labelled intelligence. Right now, smell fits the bill.

· Amber Marks is a criminal lawyer engaged in doctoral research on surveillance at King's College, London. Her book Headspace: On the Trail of Sniffer Dogs, Wasp Wardens and other Dumb Friends in the Surveillance Industry is published by Virgin, price £11.99.