Taiwan has legalised the creation of red light districts in a bid to regulate the sex industry, but prostitutes themselves say the new law could actually worsen their plight.

Under the law passed by parliament Friday, local governments are allowed to set up special penalty-free sex trade zones, but outside them prostitutes will still be be fined -- as, for the first time, will their clients and pimps.

The constitutional court scrapped the previous law punishing only prostitutes on the grounds it was unfair.

But so far no local authority has yet said it will create a legal prostitution area, leaving streetwalkers fearing they face the worst of both worlds.

The new law is a bid to protect women such as Mei Hsiang, a 58-year-old prostitute working the streets of Taipei, but she fears it is more likely to put her out of business.

"As for the zones, I don't know where the local government can set them up, so it's empty talk.

"Punishing the clients is worse than punishing us because the clients will not come for fear of being caught and fined and we won't be able to make a living," she said, her age showing despite a freshly applied layer of make-up.

"I feel hopeless about the future because the police will go after street walkers who are at the bottom of the food chain."

A recent survey of 22 local governments by the mass-circulation Apple Daily newspaper found none supporting the plan, 21 rejecting it and only one still undecided.

"We will not consider opening a sex trade zone because there is no public consensus on this highly controversial issue," said Edward Zhang, spokesman for the government of Taipei, Taiwan's capital and largest city.

"Taipei is too crowded to provide a suitable location away from schools and residential areas," he said.

While there is no official figure for the scale of Taiwan's paid-for sex business, observers estimate it generates Tw$60 billion ($2 billion) a year.

Many of the establishments are operated under the guise of tea houses, massage parlours, skin care salons or night clubs, while streetwalkers constitute less than 10 percent of the profession, observers say.

A handful of prostitutes are authorised to work under laws dating from 1956, but the government has stopped issuing new licences to phase out old public brothels.

Chung Chun-chu, chief of the advocacy group Collective of Sex Workers and Supporters (COSWAS), argues that the new legislation continues to discriminate against prostitutes.

"We are asking that no punishment is attached to the sex industry just like any other profession," she said. "The women are trying to earn a living and their working rights should be protected."

Some women's rights groups oppose the government plan for fear that red-light districts would breed more crime and human smuggling.

"We cannot eliminate the sex trade but we can reduce its scale. It is wrong to legalise prostitution which exploits and discriminates against women," said Chi Hui-jung, head of The Garden of Hope Foundation.

Chi said the central government should have passed a law punishing only those who buy sex services, instead of "throwing the hot potato" to local authorities.

Vice interior minister Chien Tai-lang told AFP it was a "highly divisive issue" and it was difficult to come up with a solution that everybody would support.

"We passed a law that punishes both prostitutes and clients, which meets the principle of fairness and which is more acceptable to the public," he said.

But a taxi driver, who said he paid regularly for sex services, called the special zone policy "hypocritical."

"The rich and powerful can enjoy themselves at exclusive clubs without worrying about being caught but regular people like me will have more troubles getting the services we need."