In a change of tactics, smugglers now offer a phone-ordering service to attract customers by distributing leaflets printed with contact numbers, brands and a price list.

British American Tobacco spokeswoman Doris Ho said the smugglers had ways to avoid being caught in an undercover sting.

'They have ways of screening their customers,' she said. 'They will grill the new customers over the phone, observe them and check out where they live before doing business.'

Yuen Long, Tuen Mun, Mongkok and Wan Chai public housing blocks and residential areas are among the more than 20 locations being targeted by the illegal traders.

In the face of the onslaught, tobacco industry chiefs yesterday launched a $2 million campaign in an effort to combat the trade.

'Consumers are being deceived when they buy cigarettes from street hawkers,' said the chairman of the Tobacco Institute of Hong Kong, Andrew White.

'Most people think they are simply buying duty-not-paid cigarettes. But our evidence shows about 90 per cent of the cigarettes being peddled by street hawkers are fake.

'This raises serious concerns, particularly from a health perspective, because consumers have no idea what they are smoking.'

Most of the untaxed contraband cigarettes are delivered to Hong Kong in shipping containers and concealed behind other cargo such as toys, noodles, biscuits or furniture to avoid paying the duty of $804 per 1,000.

Mr White said the masterminds of the billion-dollar black market trade could earn up to $1 million profit on each container by avoiding tax.

But he said the most alarming trend was the import of counterfeit cigarettes from underground factories on the mainland.

Chinese officials have conducted a series of raids on the illegal plants in recent years, including some hidden in caves with concealed entrances.

It was reported that officials had found the tobacco lying in muddy piles on the floor, that sulphur was used to colour it, that the machines were rusted and the cigarettes were sometimes rolled by hand.

'But what they do spend a lot of time and effort on is the packaging,' Mr White said.

'Even our own specialists cannot pick up the difference between a fake and real packet, even with the use of holograms and various security devices.'

He said the problem with fake cigarettes lay with their inferior quality and dangerously high levels of nicotine and other 'unknown' substances.

An illegal pack of cigarettes costs about half the average price of a normal pack, which is $32.

Up to May, 1,806 cases of illegal trading were reported by Customs and Excise officers, with 905 people arrested (843 sellers and 62 buyers). Altogether, 10.87 million illegal cigarettes have been seized.

Customs last year reported 1,865 cases of selling/buying illicit cigarettes, arresting 1,401 people (1,222 sellers and 179 buyers) and seizing a total of 10.6 million cigarettes.