The US Department of Defense (DoD) will give radio frequency identification (RFID) technology a massive boost with a new policy requiring suppliers to use RFID chips.

The RFID Policy, announced on Thursday, is the latest step towards wider adoption of the controversial technology, which civil-liberties groups fear could lead to unprecedented surveillance of consumers. Advocates say RFID chips will revolutionise supply-chain systems by making it far easier to identify and process inventory.

RFID chips contain identification information that can be wirelessly passed on to a reader, allowing, for example, the contents of a case to be identified without opening it. This promises huge improvements in supply-chain efficiency, but also raises the prospect of remote tracking of consumers via RFID chips embedded in their clothes or the cards in their wallets.

The DoD's policy requires that, by January 2005, all suppliers embed passive RFID chips in each individual product if possible, or otherwise at the level of cases or pallets. The policy applies to everything except bulk commodities such as sand, gravel or liquids. The department said the policy would allow it to streamline its supply chain and business processes.

The department is hosting a summit for industry discussing the RFID plans in February, and finalise its strategy for implementing the programme by June.

Earlier this year Wal-Mart, Gillette and other companies began attaching RFID chips to merchandise sold in stores, sparking intense criticism from consumer-privacy advocates. Wal-Mart is pressing ahead with RFID plans but has said it will not embed the chips into items that come into contact with consumers.

One of the most outspoken critics of the Auto-ID Center has been privacy activist Katherine Albrecht, the head of US pressure group Consumers Against Supermarket Privacy Invasion and Numbering. She called for worldwide boycotts of clothing retailer Benetton and Gillette after each discussed plans to put RFID chips or "tags" on their products. Albrecht also criticised MIT's Auto-ID Center for trying to downplay the privacy concerns over the technology after finding documents on the group's Web site that contained public relations advice on how to "neutralise opposition" to RFID systems.

Despite the controversy, major companies are moving ahead with plans to use RFID systems in stores and in warehouses. Wal-Mart, for instance, has a big RFID project under way involving hundreds of its suppliers. Marks & Spencer began an RFID trial in one of its London-area stores this month.

CNET News.com's Alorie Gilbert contributed to this report.