Up to 100 companies manufacturing potentially life-saving e-cigarettes could go up in smoke if a government plan to license the products goes ahead.

Electronic cigarettes are becoming increasingly popular, with 650,000 smokers switching to the devices last year, and a total two million having tried them, according to a survey by the charity Action on Smoking and Health.

The Department of Health began consultations on licensing the products three years ago, but has yet to make a decision. In March 2011, the Medicines and Healthcare products Regulatory Agency (MHRA) said it would take a further 18 months to gather evidence on the potential health risks of using the devices.

Since then, thousands more users have taken up the product as a smoking alternative.

Robert West, Cancer Research UK director at University College London, told the Times that he believed the MHRA were "mindful" that the proposed legislation could wipe out the market.

However, e-cigarette companies would only be legally required to apply for a licence if they intended to market the device as a medicinal "quit smoking" product.

Katherine Devlin, president of the Electronic Cigarette Industry trade Association, said the group would take legal action if the government sought to license the product. "We think we would win, as there are four case precedents in Europe under the same law." she said.

But the Department of Health said it remained concerned about the potential health risks associated with e-cigarettes.

Some of the products posed a "potential danger to customers", said former health minister Simon Burns. He said there could be "great variability in the content, both in the amount of nicotine present and also in relation to other potentially toxic substances", when different devices were compared.

A spokesman for the MHRA said: "We will be in a position to announce further details on how we will do this should the government make the decision to regulate e-cigarettes as medicinal products. This is expected in the spring of this year."