As a trade-off for managing stretches of the state-owned British Waterways, the private companies will be allowed to build houses and offices. It is hoped that the franchising system will raise millions of pounds for the Exchequer.
Many waterways run through cities, making them ideal for developers, but campaigners say much of the countryside's remoter canals would be neglected under the proposals and were likely to become derelict.
Ministers believe, however, that the plan would breathe life into the cash-starved canal network. Ambitious development schemes, the Government says, would regenerate hundreds of miles of derelict and disused waterways.
In cities such as Manchester and Birmingham flats and offices have sprung up around canals, in areas which used to be dominated by heavy industry.
Chris Beebe, a planning officer at Manchester City Council, said there was still "much potential" for redevelopment on the city's canals. "There has already been a lot of prestigious residential development near canals," he said. "There has already been extensive work in the Castlefield area where warehouses have been converted into offices and flats."
According to experts, the Leeds and Liverpool canal, which runs past Blackburn and Wigan, would be a prime target for more development.
The Inland Waterways Association, a charity which campaigns for the restoration and conservation of canals, has greeted news of the proposal with horror. Neil Edwards, its executive director, said: "This proposal has been going on in the background but not made known to users. We regard the canals as part of our national heritage. A lot of people use them for their leisure and they require a lot of care and maintenance. They are an irreplaceable asset to the country.
"They are not the sort of thing which should be sold to the highest bidder. The last thing that should happen is that they should be run in a cheap and cheerful way."
The association, which has helped to restore more than 300 miles of canals, admits that some canals could prosper under the scheme but argues that other rural canals would fall into disrepair.
A spokesman said that access could be a problem for the public if private companies took over waterways.
British Waterways has long lobbied for more "commercial freedom". Two years ago, it proposed that a beach be opened under Spaghetti Junction in Birmingham, one of the busiest motorway crossovers in Europe.Reuse content