They would be hit with higher council tax bills under the secret Inland Revenue plans.
The idea sparked outrage from civil liberties groups, who called it "ludicrous".
Shami Chakrabati, director of Liberty, said: "This is technology which should be used to monitor terrorist cells in Afghanistan - but it is being used to check on people's conservatories in Hampshire."
Tory spokeswoman Caroline Spelman accused the Government of "invading people's privacy and laying the ground for a new stealth tax on home improvements". But local government minister Phil Woolas blamed the Tories for spreading an untrue story, calling it "contemptible".
Deputy Prime Minister John Prescott's office insisted yesterday the plan had already been dropped because it would not work.
A spokesman said the Government's Valuation Office Agency had looked at an American system of using aerial photography and satellites.(Military I'm assuming, or Google)
He added: "The Valuation Office Agency have no plans whatsoever to use aerial photography in Britain.
"They have considered it in the past and decided that it would not be a useful tool." A source in the department added: "What works in the sparsely populated United States does not necessarily work here.(No such Program in America, Sparsely populated NY?)
The Mirror revealed last year that plans to track tagged criminals were ditched as satellites could not read signals because of heavy cloud cover, thick trees or tall buildings.