Government plans that would force tobacco firms to sell cigarettes in plain, unbranded packets could be the most powerful tool yet unleashed in the war on smoking.

The tobacco industry has admitted that the tactic, being pioneered in Britain but likely to be followed elsewhere, will slash profits and inflict enormous damage on cigarette manufacturers.

Tobacco analysts have warned in a leading industry magazine that a ban on branding and logos on packets would lead smokers to abandon well-known brands such as Marlboro and Silk Cut, which cost up to £6 a pack, and switch to cheaper options. Public health officials say it will strip cigarettes of their glamorous image and reduce the numbers of young people taking up the habit.

The Department of Health is considering outlawing the use of logos, colours and graphics on packets and requiring them to be sold in plain packaging. The latest issue of Tobacco Journal International reports that 'according to analysts from Morgan Stanley, if generic packaging becomes a legal requirement in the UK, not only could it have a domino effect on other markets, but it could also have a materially adverse impact on cigarette brand equity [and] could result in considerably reduced profits'. David Adelman of Morgan Stanley said: 'If plain packaging were adopted in the UK, some other nations would most likely mandate [it] as well.'

Adam Spielman, a tobacco analyst at Citigroup, told the publication: 'Plain packaging would level the playing field, making premium brands less attractive to smokers, and would lead to a rapid worsening of the downtrading [falling sales] trend which has been going on for years in the UK, far and away the most expensive country in Europe for smokers.'

Tobacco companies fear that introducing the plain packaging would prompt many smokers to abandon the premium brands such as Marlboro and Benson and Hedges, and instead switch to much cheaper makes costing £3.50 to £4.

As for the global tobacco industry, the seminal legislation could pose a real risk to profitability in the future, reports TJI. It points out that, as cigarette advertising is banned in the UK, packs have become more elaborate as they are the best way manufacturers can promote their brands and distinguish them from rival products.

In an insight into the industry's finances, the journal says: 'While the cost of production is roughly the same for both and, according to analysts, the difference in quality is barely perceptible, the profit margin of premium brands is considerably higher than that of low-priced cigarettes.'

The Health Department recently closed its consultation on a raft of measures to reduce the number of smokers even further, which has fallen to 22 per cent of the adult population. They include plain packaging, banning cigarettes from public displays in shops, outlawing packs of 10 and getting rid of vending machines.

It received even more responses than the 55,000 it got before last year's public smoking ban. Most respondents supported the plans, including plain packaging.

Deborah Arnott, director of health campaigning charity Ash, hailed plain packing as 'an idea whose time has come. The industry knows that plain packs spell the death knell to industry profitability,' she said. 'The industry cannot survive without recruiting replacements for the 100,000 UK citizens its products kill each year. Most of these new smokers are children and young people, who our research shows find plain packs much less attractive.'

The tobacco industry argues that the moves will lead to a rise in cigarette smuggling, more counterfeiting of tobacco products and will threaten small retailers' livelihoods.