Iceland is considering banning the sale of cigarettes and making them a prescription-only product.

The parliament in Reykjavik is to debate a proposal that would outlaw the sale of cigarettes in normal shops. Only pharmacies would be allowed to dispense them – initially to those aged 20 and up, and eventually only to those with a valid medical certificate.

The radical initiative is part of a 10-year plan that also aims to ban smoking in all public places, including pavements and parks, and in cars where children are present. Iceland also wants to follow Australia's lead by forcing tobacco manufacturers to sell cigarettes in plain, brown packaging plastered with health warnings rather than branding.

Under the mooted law, doctors will be encouraged to help addicts kick the habit with treatments and education programmes. If these do not work, they may prescribe cigarettes.

The private member's bill is sponsored by former health minister Siv Fridleifsdottir, who worked with the Icelandic Medical Association as well as a coalition of anti-tobacco groups to come up with the proposal. "The aim is to protect children and youngsters and stop them from starting to smoke," she said on Monday. The proposal would initially result in an increase in cigarette prices, said Fridleifsdottir, of "10% per year, in line with World Health Organisation proposals – evidence shows that a 10% increase results in a 4-8% reduction in consumption".

But by the end of the 10-year plan, prescription-only cigarettes should actually be cheaper than ever, according to Thorarinn Gudnason, president of the Icelandic Society of Cardiology, who helped draw up the proposal.

"Under our plan, smokers who are given prescriptions will be diagnosed as addicts, and we don't think the government should tax addicts."

Gudnason said current cigarette pricing in Iceland did not take into account the huge costs imposed on society by smokers. "A packet currently costs around 1,000 krona [£5.50], but if you factor in the cost of sick leave, reduced productivity due to smoking breaks and premature retirement on health grounds, it should really be 3,000 krona," he said.

The tobacco proposal also says that nicotine should be classed as an addictive substance. "It's as hard to give up nicotine as heroin, not in terms of the side effects, but in terms of the cravings and how quickly one becomes addicted," said Gudnason.

"We also want the government to license cigarettes like a medicine, which would mean they would have to go through the same rigorous trials as any other drug. I doubt cigarettes would ever get on the market now that we know the side-effects – lung cancer, heart attacks, chronic obstructive pulmonary disease."

Gudnason said 300 out of the 1,500 deaths in Iceland each year were caused by one of those three conditions.

"That's 20% of all deaths. We think that our proposals could lead to a significant reduction in smoking-related deaths – perhaps down to just 100 annually."

The proposal also suggests that tobacco smoke should be treated as a carcinogenic substance, and that it should be restricted in a similar way to other known carcinogens, because of the known effects of passive smoking.

Gudnason did a study five months after Iceland introduced a smoking ban in restaurants and pubs in 2007 and found a 21% reduction in acute coronary syndrome (heart attacks and near heart attacks) among non-smoking men, compared to five months before the ban.

A spokeswoman from the Icelandic ministry of welfare said on Monday that the proposal was "very serious" but had limited chances of success.

"Siv Fridleifsdottir is a very serious politician and this is a very serious proposal," said Anna Baldursdottir, political adviser to the minister of welfare, Gudbjartur Hannesson.

"Whether it not it eventually becomes law, I do not know. I seriously doubt it."

The idea will be debated in the Althing, Iceland's parliament, in the autumn, when politicians return from recess, she added.

Iceland has successfully halved smoking rates over the past 20 years. In 1991, 30% of the population smoked; today, only about 15% light up regularly, according to Baldursdottir, giving it the lowest smoking rates in Europe.

This success is attributed to huge increases in tobacco tax, which accounts for about 25% of the pack price, as well as the drop in disposable income among islanders since the financial crash of 2008.

Other countries have gone further. Bhutan has completely outlawed smoking and Finland hopes to follow suit by 2040.

Swedish surgeons now refuse to operate on smokers until they give up, because of the deleterious effect smoking has on the healing process, Gudnason added.

As an isolated island, Iceland arguably stands a greater chance of success with such draconian measures than other nations.

With no neighbouring countries and rigid customs controls at ports and airports, it will be difficult for anyone to smuggle in contraband cigarettes.