Jacqui Smith said intercepting communications was 'vital'
Proposals for a central database of all mobile phone and internet traffic have been condemned as "Orwellian".
Home Secretary Jacqui Smith said the police and security services needed new powers to keep up with technology.
And she promised that the content of conversations would not be stored, just times and dates of messages and calls.
But the Lib Dems slammed the idea as "incompatible with a free country", while the Tories called on the government to justify its plans.
Details of the times, dates, duration and locations of mobile phone calls, numbers called, website visited and addresses e-mailed are already stored by telecoms companies for 12 months under a voluntary agreement.
The data can be accessed by the police and security services on request - but the government plans to take control of the process in order to comply with an EU directive and make it easier for investigators to do their job.
Information will be kept for two years by law and may be held centrally on a searchable database.
Without increasing their capacity to store data, the police and security services would have to consider a "massive expansion of surveillance," Ms Smith said in a speech to the Institute for Public Policy Research earlier.
She said: "Our ability to intercept communications and obtain communications data is vital to fighting terrorism and combating serious crime, including child sex abuse, murder and drugs trafficking.
"Communications data - that is, data about calls, such as the location and identity of the caller, not the content of the calls themselves - is used as important evidence in 95% of serious crime cases and in almost all security service operations since 2004.
There are no plans for an enormous database which will contain the content of your emails, the texts that you send or the chats you have on the phone or online
Ms Smith attempted to reassure people that the content of their e-mails and phone conversations would not be stored.
"There are no plans for an enormous database which will contain the content of your emails, the texts that you send or the chats you have on the phone or online.
"Nor are we going to give local authorities the power to trawl through such a database in the interest of investigating lower level criminality under the spurious cover of counter terrorist legislation.
"Local authorities do not have the power to listen to your calls now and they never will in future. You would rightly object to proposals of this kind and I would not consider them.
"What we will be proposing will be options which follow the key principles which govern all our work in this area - the principles of proportionality and necessity."
But the idea of storing phone and e-mail records has provoked concern among experts.
The government's own reviewer of anti-terror laws, Lord Carlile, said: "The raw idea of simply handing over all this information to any government, however benign, and sticking it in an electronic warehouse is an awful idea if there are not very strict controls about it."
'Soft soap' claim
Shadow home secretary Dominic Grieve, for the Conservatives, said he welcomed Ms Smith's consultative approach but added her speech "begs mores questions than it answers".
"These proposals would mark a substantial shift in the powers of the state to obtain personal information on individuals," he said, adding: "The government must present convincing justification for such an exponential increase in the powers of the state."
Lib Dem home affairs spokesman Chris Huhne said: "The government's Orwellian plans for a vast database of our private communications are deeply worrying.
"I hope that this consultation is not just a sham exercise to soft-soap an unsuspecting public."
He said the government had repeatedly shown it could not be trusted with sensitive data, adding: "There is little reason to think ministers will be any less slapdash with our phone and internet records.
"Ministers claim the database will only be used in terrorist cases, but there is now a long list of cases, from the arrest of Walter Wolfgang for heckling at a Labour conference to the freezing of Icelandic assets, where anti-terrorism law has been used for purposes for which it was not intended."
"Our experience of the Regulation of Investigatory Powers Act suggests these powers will soon be used to spy on people's children, pets and bins.
"These proposals are incompatible with a free country and a free people."
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