Technology is gradually eroding personal privacy as well as putting people's lives at risk.

This was the stark warning from the Royal Academy of Engineering in its report on privacy and surveillance in the UK.

It paints an alarming picture about how new technologies are gradually eroding personal privacy and the ways they could be abused.

"Advances in technology have the potential to do great good, but they also carry the risk of doing damage if they are introduced without proper care and forethought," warned the report.

It gave some scenarios about how personal data could be abused. For example although it may sound far fetched, it said biometric data on ID cards and passports could be used by terrorists who could use this information as the trigger to detonate specially crafted bombs against specific nationalities or ethnic groups.

Another that may sound more plausible is misuse of personal data by Governments and other organisations.

"It is not entirely absurd to imagine that supermarkets' loyalty card data might one day be used by the Government to identify people who ignored advice to eat healthily, or who drank too much, so that they could be given a lower priority for treatment by the NHS," said the study.

The report echoes closely stark warnings made last year by Information Commissioner, Richard Thomas. In its report, A Surveillance Society, which looked at surveillance in 2006 and projects forward ten years to 2016, he warned we have already unwittingly let our lives be tracked by visible and invisible means.

"Two years ago I warned that we were in danger of sleepwalking into a surveillance society. Today I fear that we are in fact waking up to a surveillance society that is already all around us," he said.

However, the chairman of the group report, Professor Nigel Gilbert, said the RAE's aim was not to scare people but to open up the issues to debate.

"We need to think very carefully about contingency plans," he said, "about what can go wrong and what we are going to do about it when it does go wrong," he said.

The report said it was perfectly possible to develop technologies that didn't compromise personal privacy and security and engineers should play an important role in the research and development of these.

"ID or 'rights' cards can be designed so that they can be used to verify essential information without giving away superfluous personal information or creating a detailed audit trail of individuals' behaviour [or] sensitive personal information stored electronically could potentially be protected from theft or misuse by using digital rights management technology.

Engineering ingenuity should be exploited to explore new ways of protecting privacy," the report read.

It also recommended the creation of a digital charter which would outline an individual's rights to manage, share and protect the data being collected about them.

It also called for tougher penalties for people and companies that abuse data protection laws saying current sanctions were "close to trivial".