Foreign nationals would be issued with "biometric residence permits" from 2008 when they applied for a national insurance number in Britain, he said.
Without being registered on the ID card database they would not be able to work, claim benefits or get free hospital treatment, he said.
For British citizens the cards will not be introduced until 2009 and will remain voluntary till parliament votes after the next general election on whether to make the scheme compulsory.
ID cards are used in at least a dozen EU countries including France, but are not always compulsory. Britain's ID cards will have more encrypted data than any other.
Thirteen million foreigners pass through Britain every year and the "open world... global mass migration, easier travel, new services and new technologies" had brought new problems such as illegal immigration, terrorism and fraud, Blair said on Monday.
The ID cards would make Britain's borders more secure, he said.
"I want to see ID cards made compulsory for all non-EU foreign nationals looking for work and when they get a National Insurance number" he said.
"This will enable us to check accurately those coming into the country, their eligibility to work, for free hospital treatment or to claim benefits," he said.
Blair said the ID cards would make it easier for people to open a bank account, get a mortgage or benefits.
They will only have to carry one piece of ID rather than passports, driving licences, bills and other documents.
The cards will be issued to anybody renewing their passport from either 2008 or 2009, at a combined cost of 93 pounds.
The Conservatives and the Liberal Democrats have made it clear they would scrap the scheme if they come to power.
Labour party strategists believe this "clear blue water" between the government and the opposition enables them to regain the initiative in the battle over civil liberties.
Blair said advances in biometric technology, capturing fingerprint and iris scans electronically, had led to an opportunity for more secure protection of personal identities and would therefore help in tackling identity fraud, illegal migration and terrorism.
He said national identity register would also help to improve police detection rates for the first time in decades by giving officers access to the database to compare 900,000 outstanding crime scene marks with fingerprints held centrally.
Stressing the personal benefit of having a national ID card, Blair said it would do away with the need to produce other documents for the purpose of proving one's identity.
He claimed that because most citizens provided personal information to private companies on a daily basis he did not think "the civil liberties argument carries much weight".
An "action plan" is to be published by the Home Office next month to "explore the benefits" to people of having an ID card.
He said talks were being held with each Government department over how the cards would be used, including provisions to share the data on the national identity register.
Shami Chakrabarti, director of the civil liberties pressure group Liberty, said the choice between civil liberties and "modernity" presented by Blair was a false one.
"At this stage in his career, he might reflect more and patronize less. Does the public that he claims to speak for really want a future devoid of all the rights and freedoms which previous generations of Britons fought to defend" she asked.
