It has published the Identity Documents Bill which pledges to cancel the existing Identity Cards Act and decommission the scheme "by summer 2010".
The bill was announced in the Queen's speech earlier this week and is the first piece of legislation to be introduced by the new government.
The National Identity Register, which holds the biometric and biographic details of card holders, will be "physically destroyed" according to the Home Office, shortly after the Identity Documents Bill receives royal assent. The government hopes to have the bill passed through parliament and enacted before the August recess starts.
Home secretary Teresa May said cancelling identity cards will save the taxpayer around £86m over the next four years, once one-off costs such as decommissioning, contract termination and asset write-offs are taken into account.
The government says it will also save ongoing operation costs of £800m over ten years.
"It is not just about cost savings. It is about getting the balance right between national security and civil liberties", May said.
This story was first published by Computer Weekly