LONDON (Reuters) - Motorists are to be offered up to £5,000 ($7,500) to encourage them to buy electric or hybrid cars under a new government plan.

The plan also sets aside £20 million for charging points and infrastructure to develop a network of what the government calls "electric car cities".

The incentives will be offered from 2011 when a new generation of electric cars is expected to become available.

Environmental groups said it was a step in the right direction but fell short of initiatives in other European countries like Denmark who were streets ahead.

Business Secretary Peter Mandelson and Transport Secretary Geoff Hoon announced the plan in Scotland as part of a 250 million pound scheme to cut emissions and at the same time help the struggling motor industry.

"Cutting road transport CO2 emissions is a key element to tackling climate change," said Hoon. "Less than 0.1 percent of the UK's 26 million cars are electric, so there is a huge untapped potential to reduce emissions.

"The scale of incentives we're announcing today will mean that an electric car is a real option for motorists."

The available funding would only be for fully electric and plug-in petrol-electric hybrids. As such, currently commercially available hybrids, such as the Toyota Prius, would not be eligible.

There is a limited range of electric vehicles on the market, and sales have been held back by a number of factors: They commonly have a limited range of about 40 miles, take about seven hours to charge, and have only two seats.

They range in price from about £8,000 to more than £80,000 for high-performance models.

Last week, London Mayor Boris Johnson announced a plan to introduce thousands of charging points across the capital.

A national demonstration project will give a small sample of some 200 motorists the opportunity to drive a cutting-edge car and give feedback to the industry.

But the government hopes to target drivers of a new generation of all electric or plug-in petrol-electric cars, which are expected to go on sale in two years time.

Speaking at a racing circuit in Dunfermline, Geoff Hoon said the plan was about "encouraging the idea that electric vehicles will become part of everyday life, that people will take them for granted and they will look and feel the same as any other car".

Jay Nagley, an analyst at Spyder Automotive, said the announcement was very significant for the car industry.

"The big problem is that the next generation of electric cars will initially be very expensive to make - manufacturers say about double the price of a petrol car," he said.

"Without subsidies nobody will buy them, so manufacturers won't be able increase production and get the price down."

Mr. Nagley added that by 2020 about a quarter of all cars sold could be electric.

"They won't be solely electric cars but hybrid cars, which can run for 40 miles before the petrol engine kicks in."

Green groups said the plans would make little difference if the electricity used to power them came from dirty coal-fired power stations.

"The cash that Geoff Hoon is offering to motorists would only put 26,000 new electric cars on the road — that's just 0.1 percent of the total number of cars in the UK," said John Sauven, Greenpeace's executive director.

That view was echoed by the Renewable Energy Association and Friends of the Earth who said more had to be done to boost renewable energy efforts.