The Government hopes the programme will save about pounds 100m a year and reduce the 64,000 prison population in England and Wales by 4,000 at any time.
Prisoners qualifying for the new home detention curfew, which starts next week, will be allowed to go home for between two weeks and two months at the end of their sentence.
To qualify, they must be over 18 and be serving sentences of between three months and four years. They are subject to a risk assessment test and must be able to go to a suitable home, which can be fitted with an electronic monitoring system. The first 200 prisoners will be released on 28 January.
The new programme will be a boon to the private security industry, which will make pounds 20m a year monitoring the prisoners at the rate of at least pounds 500 per offender.
Harry Fletcher, of the National Association of Probation Officers, predicted that some prisoners would find it difficult to abide by the curfews.
He said: "Any reduction in prison numbers must be welcomed but we are expecting these prisoners to come out and do the opposite of what they would normally do on release."
Tagging has already been piloted in seven areas, with 144 of the 2,000 offenders being sent back to prison for breaching their curfews, imposed by courts under the Criminal Justice Act 1991.
Steve Collett, assistant chief probation officer in Greater Manchester, said his staff had overcome their initial concerns about the effectiveness of the technology and the tag's infringement on an individual's civil liberties.
He said: "Probation officers have come to see it as useful for certain offenders, particularly when linked to active supervision."
The programme was also welcomed by the National Association for the Care and Resettlement of Offenders.
There are several designs of tag - some look like large wrist-watches and others are the size and shape of a cigarette packet - and they are typically worn around the ankle 24 hours a day throughout the programme.
A monitoring device, placed inside the home, sends an alarm signal if the tag passes outside its range, which is normally the perimeter of the building.
The alarm is sent by telephone line to the private security company monitoring the offenders. Breach of a curfew is likely to lead to the offender being sent back to prison.
The offenders will be monitored by Securicor Custodial Services in the north, Premier Monitoring Services in the Midlands, Wales and the east, and by GSSC of Europe in the south.
Greater use of tagging has been supported by the Home Affairs Select Committee and Sir David Ramsbotham, chief inspector of prisons, who said that up to 20,000 prisoners should not be in jail and were wasting pounds 500m of public money each year. Prison costs an average pounds 24,271 a year, compared with pounds 3,500 a year for community sentences, though reoffending rates are similar, at 53 per cent and 57 per cent respectively in the two years after sentencing.
Tom Stacey, director of the Offender's Tag Association, has been campaigning for the use of tags for 18 years. He said society was now much less fearful of the "Big Brother" connotations of using electronic devices to control people's movements. "The Orwellian nightmare was still active in the early Eighties when we started: 1984 was still in the future," he said.
Mr Stacey said he looked forward to "tracking" tags being introduced so offenders could go to work while remaining under surveillance.