Ministers have been warned not to create laws "dictated by the tabloid press", in a debate on proposals to toughen up mental health legislation.
Lord Bragg said the bill needed "serious amendments"
Health minister Lord Warner told the House of Lords the aim of the Mental Health Bill was to protect both the public, and patients, from harm.
Between 55 and 60 murders a year are committed by mentally ill patients.
But proposals were criticised as disappointing, "rooted in stereotype" and "unfit for purpose".
Lord Warner told peers, during the second reading of the Mental Health Bill, that it would introduce new safeguards for people who were deprived of their liberty in their own best interests.
"We also need to bring our legislation fully into line with the European Convention on Human Rights," he said.
He added that while more than 900,000 people were seen by specialist mental health services at any one time, only about 15,000 would be detained under the Mental Health Act.
And he said more and more money was being spent on mental health services - up £1.25bn this year on spending in 1999 - and there were "record numbers of staff" working in mental health.
The bill would update the existing 23-year-old Mental Health Act.
Changes include a new test to ensure mentally ill people get the appropriate treatment, to replace the current "treatability test".
Currently patients can be sectioned, but only if their condition is treatable - under the new law compulsory therapy would be allowed if appropriate treatment is available.
And it would see supervised treatment in the community, designed to ensure patients who had received compulsory treatment in hospital, continued to take medication
But Labour peer Lord Bragg, president of the mental health charity Mind, said the bill needed "serious amendments".
"At times, it seems to be rooted in the stereotype that those suffering from severe mental health problems are likely to be threatening and dangerous," he said.
Moves to change the law began after the Michael Stone case
"There's a growing culture of alarm in this country but we cannot tolerate witch-hunts."
He said "disproportionate" media coverage of murders by mentally ill people left the impression that the law had failed to protect the public. In fact he said the key was not to reform the law, but invest in services.
And former Mental Health Act commissioner Baroness Meacher warned: "We are in danger of creating a mental health system dictated by our tabloid press. This bill needs to be amended."
Psychiatry professor Baroness Murphy said the bill could "frighten away from services potentially violent patients."
And Lib Dem peer Baroness Barker said the Bill would turn the clock back 70 years in mental health legislation and was "unfit for purpose".
A desire to change the law was largely driven by Michael Stone's 1998 conviction for the murders of Lin and Megan Russell.
Stone was regarded as a dangerous psychopath and it has been assumed he was not held under mental health powers because his condition was considered untreatable.
However, an inquiry found he was receiving treatment - but was not given the correct care.