Chris Smith: Welcomed the move

Culture Secretary Chris Smith, who is a keen advocate of digital services, said he "warmly welcomed" the move.

"Digital technology offers a real opportunity to ensure everybody has easy and affordable access to a wide range of services, from traditional broadcasting to interactive television and use of the internet," he said.

He added it would allow the government to evaluate public expectations and reactions to a fully digital environment, and help the manufacturers to "solve some of the remaining technical issues".

Mr Smith and Trade and Industry Secretary Stephen Byers also said more than 20 broadcasters, manufacturers and retailers were interested in taking part.

'Digital divide'

Mr Byers added that digital televisions could be used as a "learning resource", and that one in three households and one in two families with children now have digital TV.

"We need to ensure that Britain leads the world in the development of digital television, and that every community shares in the benefits and that we don't see the creation of a digital divide," he said.

The first digital neighbourhood was expected to be identified by the government within the next two months and provided with the free equipment within six months.

The news follows an announcement earlier this month that digital radios are set to become smaller, lighter and cheaper within the year.

Digital One - the national digital radio network - backed by commercial radio company GWR and cable provider NTL, announced a plan to develop a chip that could reduce the price of digital equipment.

Public demand for digital radios has been low - largely due to the prohibitive cost of boxes, which currently retail at about �299.

The plan is to cut the price of a basic radio to under �150 within the year and the eventual aim is to get the price under the critical �100 figure.