"It will make it tougher to work illegally in this country, making our borders more secure," Prime Minister Keir Starmer said in a statement on Friday announcing the move, which had been previously reported.
Polling shows immigration tops British voters' concerns, with Starmer under intense pressure to stop people entering the country illegally by crossing the sea in small boats from France.
The plans drew criticism from political opponents.
"It's laughable that those already breaking immigration law will suddenly comply, or that digital IDs will have any impact on illegal work, which thrives on cash-in-hand payments," said a spokesperson for Nigel Farage's populist Reform UK Party, which currently leads opinion polls.
The next election is not due until 2029.
The government said the digital ID would be held on people's mobile phones and become a mandatory part of checks employers already have to make when hiring staff by the end of the current parliament.
Over time, it would also be used to provide access to other services such as child care, welfare and access to tax records.
Identity cards are relatively common elsewhere in Europe, including France, Greece, Italy and Spain.
Britain said it would take the best aspects of digital IDs in Estonia, Denmark, Australia and India in its design.
More than half of Britons - 57 per cent - support a national identity card scheme, polling by Ipsos found in July, with convenience given as the biggest reason.
But three in 10 were concerned about their personal data being used without permission, followed by worries about information being sold to private companies and security breaches.
Starmer's Labour Party attempted to introduce an identity card when it was in power in the 2000s, but the plan was dropped on civil liberty concerns.
Identity cards were abolished in the UK after World War II, and Britons typically use documents such as passports and driving licences to prove their identity.
Irish nationalist politicians in Northern Ireland, where many hold Irish rather than British passports and symbols of British rule are divisive, also criticised Starmer's plan.
The proposal was "ludicrous and ill-thought out," said Northern Ireland First Minister Michelle O'Neill, the head of Sinn Fein in the region.
Britain has a poor record in delivering major IT projects on time and on budget, such as a multibillion-pound initiative launched in 2002 to digitise health records that failed to deliver most of its objectives.
15°C