Smog from vehicles and power plants in the area nudged pollution monitors into the "very high" level, triggering an automatic health warning.

Across the territory the government-collated Air Pollution Index passed the critical 100 mark, a point at which the Health Department warns anyone with breathing or heart problems to stay at home.

The worst affected areas were the downtown Central region and the Yuen Long new town in the New Territories district that adjoins neighbouring China.

Hong Kong has become subject to almost daily smog, which mostly originates in neighbouring southern China's heavily industrialised Pearl River Delta region.

Vehicles and coal-burning power plants in Hong Kong are also partly to blame for the smog, which blocked out views of the city's famous harbour for more than a third of all days last year.

The problem has become so bad that business groups have taken up the issue warning that the unhealthy air is deterring investment and could spark a talent drain.

The government says it is committed to reducing the problem and on Tuesday announced it would begin a pilot emissions trading scheme with Guangdong province.

The plan hopes to see power plants in the two neighbours work to reduce their output of harmful greenhouse gases.

While environmental experts welcomed the move they said the measures were too little, too late.

"Since it does not address the mix of small-scale, polluting factories that are generating many of the air pollutants of concern, it must be seen as the first step in introducing new economically-driven measures to further tackle the significant air quality concerns in the PRD region," said Christine Loh, chairman of campaigning think tank Civic Exchange.

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