SNP MSP Dennis Robertson plans to introduce the tough new powers as part of a bill he hopes to introduce in the Scottish Parliament following widespread concern about parking abuses under the system.
An appeals process for applicants initially refused the permit would also be introduced under the plans.
The move is designed to target the fraud, which costs the public purse in lost revenue and inconveniences genuine disabled people seeking a parking space.
Fraudulent use of the badge can carry a penalty up to £1000.
Mr Robertson, registered blind and a blue badge holder, launched a consultation on his proposals, which he plans to introduce in the autumn.
The Aberdeenshire West MSP said: "Finding suitable parking spaces, particularly in towns and cities, is difficult at any time. However, if you have a disability it can be even more difficult to find a parking space close to your destination, whether it is for work, education or leisure.
"This paper is about ensuring we try to eradicate the abuse and misuse of the blue badge."
They provide a concession that allows certain disabled people to park on-street with free use of parking meters and pay and display bays.
The public spending watchdog, the Audit Commission, has identified how criminals forge blue badges or steal valid badges from cars that are subsequently sold on the black market, the consultation documents states.
Mr Robertson said: "We have 270,000 blue badges in circulation but the national fraud information service has told us there are 4500 still registered to people who are deceased.
"We also know people are making re-applications for the badges of persons who have been deceased.
"That means people who are legitimate users of the blue badge are finding it much more difficult to find parking spaces."
The proposed bill will extend the law which currently allows council parking attendants, traffic wardens and police to examine and seize blue badges.
It also gives councils the power to cancel badges that have been reported lost or stolen and no longer held by the badge holder.
A new offence for use of a blue badge cancelled by a local authority would also be introduced.
Mr Robertson believes his plans to strengthen the current law will gain the support of the Scottish Government and MSPs.
The consultation on the proposed Disabled Persons' Parking Badges (Scotland) Bill runs until March 20.
Dr Pauline Nolan, policy and engagement officer at Inclusion Scotland, said: "We support Mr Robertson's bill to improve the delivery of blue badges to disabled people who need them to live independently by preventing their misuse, which can lead to distrust of genuine badge holders and a dearth of available spaces for those who genuinely need them."
Glasgow Labour councillor Sohan Singh angered colleagues after he was found to have illegally used a blue badge in a disabled bay. He is understood to have told colleagues the blue badge belonged to a niece.
Yorkshire MP Philip Davies has previously called for those abusing the privilege to be jailed for a minimum of six months.