Hair dye has previously been tied to tumours of the breast, bladder, ovaries, brain and leukaemia. Increasing numbers of users are becoming allergic to their contents, sometimes with fatal results.
Chemicals in permanent hair dyes can react with tobacco smoke and other pollutants to create one of the most powerful cancer-causing compounds, the journal Materials reports.
With over a third of women and one in 10 men regularly colouring their hair, researchers say it is "imperative" that the risk to health is quantified.
However, the cosmetics industry has strongly disputed the claim, the Daily Mail reports.
The warning comes from scientists at Green Chemicals, a Leeds-based company that conducted a review of the chemistry surrounding hair dye.
In 2009, the Daily Mail reported that women who use hair dyes more than nine times a year have a 60 percent greater risk of contracting blood cancer. A year later the European Commission banned 22 hair dyes which put long-term users at risk of bladder cancer.
Chemicals called secondary amines, present either in all permanent hair dyes or formed in them, can penetrate skin and stay on the hair for weeks, months or even years after the dye is applied.
Over time, they could react with tobacco smoke and exhaust fumes, to form highly poisonous chemicals called N-nitrosamines.
Known to cause cancer, these are banned from use in cosmetics. But the Leeds researchers argue that they can still be generated via a simple chemical reaction.
David Lewis, study co-author and an expert in the chemistry of various dyes, said: "At this stage, we can't be sure of the amount of N-nitrosamines produced or the level of risk these compounds pose but it is clear a potential hazard exists."
"In the interest of consumer safety, it is imperative that a thorough and independent investigation is conducted to establish the levels of toxicity of these compounds and the potential risks," added Lewis.
A spokesman for Green Chemicals, which is about to launch its own "ultra-safe" range of hair dyes, said that despite numerous studies, the danger posed by chemicals in hair dye reacting with air has been missed or ignored until now.