“Beneath the pavement – the beach!” cried the Situationists of Paris 1968.

“Beneath the pavement – the swimming pool, bowling alley, private cinema and car museum!” reply the oligarchs of West London. But perhaps not for much longer.

Swept up in a craze of burrowing, residents of Westminster and Kensington and Chelsea have been progressively undermining their streets with elaborate warrens of luxury bunkers, as reported last year, digging deeper and wider with ever more precarious consequences.

Now the boroughs have had enough. The City of Westminster, which saw almost 200 basement extension applications during 2011/12, has announced it wants to put an end to the iceberg homes of the super-rich, which have caused flooding, sink holes and structural damage to neighbouring buildings in the past – as well as endless disruption during the construction process.

“It is about restricting developments akin to the decks of a nuclear submarine that are too large and cause real disruption for our residents,” said Robert Davis, Conservative deputy leader of the council. “Currently the national planning guidance allows developers and homeowners to down periscope and build whatever size they like,” he added. “Our residents have asked us to tackle this issue; this is what we are doing.”

The plans look set to limit extensions to 50% of the property's garden size, with depths of no more than one storey. The council will also seek to enforce a 1.2m minimum depth of soil between a garden and the roof of a basement extension. In the past there has been no such minimum depth, leading to ongoing problems with drainage – and increasingly barren back yards.

Westminster's move follows Kensington and Chelsea's proposals, currently being reviewed, which also limit the size of basements to 50% of the garden, as well as forbidding extensions beneath listed buildings and demanding the compulsory installation of pumps to prevent flooding from sewers.

There are signs that something of a “basement tax” is also being enforced, with supersized domestic extensions now subject to the same affordable housing contributions as commercial developments. In August, hedge-fund manager Reade Griffith was hit with a £825,000 levy (under Section 106) for his plans for a two-storey basement beneath two large villas in Notting Hill – of an area equivalent to eight average-sized new-build family homes, complete with plunge pool, spa pool, a cinema room, games room, bar and a wine store. It was also subject to an additional £42,500 payment to the Greater London Authority, in the form of a community infrastructure levy, unheard of for single private dwellings.

But will such one-off payments provide a deterrent? Alan Waxman, founder of developer Landmass London, thinks owners are unlikely to be put off. “If they are building around 1,000 square metres, that could be worth some £10m,” he said. “So even if it cost £4m to do and the fee is £800,000 the owner could still double their money.”

Westminster's policy will now be subject to consultation and could be in place by 2015 at the earliest – leaving the next year open, before restrictions come into effect, for a frenzied flood of applications.