The researchers will test human embryos left over from IVF treatment to find those that are genetically programmed to develop into the "O-negative" blood group, which is the universal donor group whose blood can be transfused into anyone without fear of tissue rejection.

This blood group is relatively rare, applicable to about 7 per cent of the population, but it could be produced in unlimited quantities from embryonic stem cells because of their ability to multiply indefinitely in the laboratory.

The Wellcome Trust is believed to have promised £3m towards the cost of the project, with further funding coming from the blood transfusion services of Scotland, and England and Wales. The Irish government is also understood to be involved. A spokesman for the Wellcome Trust said complicated legal issues were still being ironed out between all the parties involved but that an announcement is likely to be made in the coming week.

Scientists in other countries, notably Sweden, France and Australia, are also known to be working on the development of synthetic blood from embryonic stem cells. And last year, a team from a US biotechnology company, Advanced Cell Technology, announced that it has been able to produce billions of functioning red blood cells from embryonic stem cells.

But the US work had been held up because of funding problems dating back to the ban on embryonic stem cell work under the Bush administration. President Barack Obama has since reversed that policy. [Of course, 2 days later Obama signed a law banning such funding]

But developing blood made from the cells of spare IVF embryos will raise difficult ethical issues for people not happy with the idea of destroying embryos to create stem cells. It also raises the intriguing philosophical question of whether the synthetic blood will have come from someone who never existed. In theory, just one embryo could meet the nation's needs.

Josephine Quintavalle of the public interest group Comment on Reproductive Ethics said: "Like so many of the claims associated with embryonic stem cells, this is first steps research rather than a cure around the corner, and just as hypothetical as the rest of the claims which try to justify destroying the human embryo for the benefit of mankind.

"Associating this controversial research with a National Blood Transfusion service may even end up contaminating the feel-good image of blood banks.

"Those who donate blood but who defend the right to life of the human embryo may be reluctant to continue giving their blood."