Southampton City Council must stop recording passengers' and drivers' conversations in its taxis, the information watchdog said today.
Information Commissioner Christopher Graham said the city council had ''gone too far'' in its desire to ensure people's safety.
Most people would reasonably expect more privacy in the back of a cab, he suggested.
While CCTV can still be used in taxis, making it compulsory to record all conversations in taxis must stop, Mr Graham said.
''By requiring taxi operators to record all conversations and images while the vehicles are in use, Southampton City Council have gone too far.
''We recognise the council's desire to ensure the safety of passengers and drivers but this has to be balanced against the degree of privacy that most people would reasonably expect in the back of a taxi cab.
''It is only right that the privacy of drivers and passengers is respected.
''This is particularly important as many drivers will use their vehicles outside work.
''While CCTV can be used in taxis, local authorities must be sensible about the extent to which they mandate its use, particularly when audio recording is involved.''
The watchdog also revealed that a similar scheme in Oxford, which would have also recorded conversations, would breach the Data Protection Act and added that the council has now suspended the implementation of the policy.
''We hope this action sends a clear message to local authorities that they must properly consider all the legal obligations on them before requiring the installation of CCTV or similar equipment and that audio recording should be very much the exception, rather than the rule,'' Mr Graham said.
Images should only be recorded where it is ''clearly justifiable'' while audio recordings should only be made ''on very rare occasions, for example where there are a high number of serious incidents and where recording is triggered due to a specific threat in a taxi cab'', the watchdog said.
Nick Pickles, director of the civil liberties campaign group Big Brother Watch, said: ''Recording every minute of every passenger's conversations in taxis is an unjustified and intrusive measure, and we're pleased the Information Commissioner is now taking action against to stop Southampton council forcing taxi drivers to spy on their customers.
''What is deeply concerning is that two councils have made huge errors of judgment in pursuing audio recording in taxis and that is an issue the commissioner needs to urgently address.
''Across a whole range of issues councils time and time again fail to respect people's privacy and this attitude must be tackled.''
Deputy council leader Jacqui Rayment said: “We are disappointed with this decision as it is about safety for both the drivers and passengers.
“Data is encrypted, kept very securely and only downloaded if there is a specific complaint against a driver or if the police request access in order to investigate an alleged offence.
“When we received the preliminary enforcement notice in May the council responded to the Information Commissioner’s concerns about privacy but these reassurances have not been take on board in this judgement.
“We are currently taking legal advice on the next steps to take, including appeal.”