A report has found that around 25 percent of cigarettes available in Britain are counterfeit or illicit foreign imports and contain arsenic, rat droppings and lead.
However, smokers are willing to take the risk because the cigarettes are cheap, The Sun reported.
A cigarette company said people were turning to illegal copies of big-name brands because they are "tax-free" and cost as little as three pounds a packet.
Experts warn that the illegal trade costs the British Treasury around three billion pounds a year in lost tax.
It is also big business for criminal gangs and terrorists, the daily said.
Mokhtar Belmokhtar, the one-eyed Algerian terrorist involved in the recently attack on an oil field in Algeria, is dubbed "Mr. Marlboro" after it emerged that he helped fund his terror war through cigarette smuggling.
Officials also found fake cigarettes being sold to children at illegal "fag houses".