Motorists may soon be driving cars powered by kelp and algae after scientists in Scotland and Ireland won European funding today for a new research project to create "mari-fuels" - the marine equivalent to plant-based biofuels.

Marine scientists based in Oban north of Glasgow are to lead a €6m (£5m) research programme which will investigate ways of converting seaweeds and plant algae into fuel as an alternative to the increasingly controversial use of food crops to produce bio-fuels. Fuels produced from plants are, in theory at least, carbon neutral and for that reason an attractive alternative to petrol.

The Scottish Association for Marine Sciences (Sams) laboratory has been pioneering techniques for exploiting the UK's vast quantities of wild seaweed stocks, particularly kelp, the ubiquitous, brownish weed which is common along the British coastline. Ministers want 2.5% of all the petrol and diesel used in the UK to be from renewables sources, as the crops grown to produce the plants used in the fuel mixture absorb the CO2 released by the fuel, reducing its impact on climate change.

But unlike the plants currently used for bio-diesel such as oil seed rape, sunflower oil or palm oil, seaweed naturally grows at an extremely fast rate and it avoids taking valuable agricultural land out of food production or destroying rainforest - key concerns of environmentalists. It is also likely to be more easily converted into ethanol, then mixed with diesel to create bio-diesel, or into methane, which could be burnt for electricity.

The EU funding, supplemented by money from economic development agencies in the UK and Ireland, will be shared by scientists at Sams, and scientists at Queens University in Belfast, the University of Ulster, and the Institutes of Technology in Dundalk and Sligo in Ireland.

Alex Salmond, Scotland's first minister, said the BioMara research project was another significant boost in the quest to find alternative fuel sources and also economic development in marginal rural areas.