The consultation document released last month calls for the UK's 3,000 salvage operators to register with local authorities. Failure to comply could result in a £5,000 fine.
They will also be required to keep records of every car received and sold, and obtain proof of identity from buyers and sellers. Police will be given the right to enter premises without a warrant to inspect vehicles or parts kept on site.
The proposed regulations have been welcomed by leading salvage operators.
Alan Greenouff, chairman of the British Vehicle Salvage Federation, said: “Enforcement by local authorities should lead to greater stability in the market and create a more level playing field for all concerned, which is long overdue.”
The consultation period runs until the end of February, with a scheduled introduction in June.
The Government also plans to launch a vehicle identity check scheme that will prevent written-off vehicles returning to the roads following a repair until checks are carried out to ensure it hasn't been stolen or ringed.
The DVLA would not issue new registration documents until the vehicle had passed the identity check.
A three-month consultation period started last week and the scheme could be operational from April 2003.
The Government is keen to work closely with police, salvage operators, repairers and consumer groups.
Transport Minister David Jamieson said: “Vehicle crime is one of the crimes that most concerns the public – it involves around 30,000 vehicles a year.
“We are therefore introducing a package of measures over the next 18 months to tackle the problem head on.”