Innovate UK, a technology arm for the government, has launched a competition to find the best innovators in the internet of things (IoT).

IoT refers to connected devices that respond intelligently to their environment and in order to solve some of the UK's urban challenges. The competition has called on all businesses of all sizes to look at problems in the transport, healthcare and energy sector to come up with solutions using the internet of things technology.

The winning project will be awarded up to £10m and cash will come from the wider investment pool announced in the March pre-election budget.

Cisco recently reported that the IoT phenomenon will be worth up to £100m to UK startups within a decade. Gartner has claimed that a quarter of a billion connected vehicles will be on the roads by 2020.

There have also been many warnings that IoT devices could prove a threat to cyber security.

Alastair Paterson, co-founder of Digital Shadows - a company that finds cyber breaches on behalf of its clients said: "From a data loss point of view, Internet of Things devices pose a threat. Some manufacturers have set them up to publish content online by default.

"Once data is out on the internet you can't take it back. This will be an interesting concern for future generations as trends like the Internet of Things develop. What are the implications of lives being led electronically online in 10 or 20 years? We're just at the beginning."

The Federal Trade Commission released a report which found 25 billion objects are already connected online worldwide and the number is growing rapidly as electronic manufacturers look to capitalise on the possibilities of IoT. The FTC warned however that as manufacturers work to make device communication as seamless as possible, security and privacy could become a great concern.

Digital economy minister Ed Vaizey said: "The Internet of Things is rapidly becoming part of our everyday lives.

"This competition will be instrumental in discovering new connections between city services and their users, and identifying many more advantages that the Internet of Things could offer."