Councils are routinely using anti-terror surveillance powers
A "substantial number" of the most serious offenders in Britain's prisons, including murderers and rapists, are not on the DNA database.
Home Secretary Jacqui Smith says she will close the loophole which means they can be freed without their DNA being added to the database.
She also proposed changes to stop under-10s' DNA being stored.
The database is controversial because people who have never even been charged with an offence can be put on it.
Ms Smith insisted that a recent European court ruling against holding the DNA of people not convicted of any crime would not "undermine" Britain's DNA database.
But she added: "We will consult on bringing greater flexibility and fairness into the system - a differentiated approach possibly based on age, or on risk, or on the nature of the offences could be retained."
A 12-year-old who had their DNA taken for a minor misdemeanour, for example, could be taken off the database when they reach 18, but not a 17-year-old convicted of a violent offence, she said.
But it was too early to say whether these measures would satisfy the The European Court of Human Rights, she added.
"We will look carefully at the ruling but what I want is to safeguard the world-leading position that we have in the use of DNA," she told BBC News.
Under the proposals, DNA would continue to be collected from those aged 10 and under but it would not be retained and the 70 or so DNA records of under-10s currently held by the police would be destroyed.
Ms Smith said she wanted to increase the number of serious offenders on the database, starting with all serving prisoners.
According to the Home Office, all people arrested after 2004 are on the DNA database but a "substantial number" held before that date will not be on it, despite DNA being collected by some arresting officers since 1999 and a "catching up exercise" carried out in 2003.
Officials could not give a precise figure for how many prisoners were still not on the database.
"Because of the relative recentness of the DNA database some people who may have been convicted of serious offences are not on it," said Ms Smith.
The government's aim is to collect samples from every serious offender, including those who have already been released from prison, and people convicted of crimes abroad when they return to the UK.
But Ms Smith added: "What the police advise me is that there are people in the system now who don't have their DNA on the database and I think we should start with them."
She also wants to extend the period of time people convicted of a crime can be forced to return to a police station to give a DNA sample, from the current one month limit.
Ms Smith promised a Forensics White Paper next year would re-examine the rules.
But Chris Huhne, the Lib Dem home affairs spokesman, urged the government to comply fully with the European Court ruling.
"Strasbourg has confirmed what most people have known for years - innocent people should not have their DNA stored on the database.
"Ministers should remove all children from the database, unless convicted of a violent or sexual offence, not just those under ten."
In a speech to members of the technology industry at the Intellect trade association, Ms Smith also said councils who use serious crime surveillance laws to spy on members of the public could face new restrictions.
Ms Smith said they should not use the Regulation of Investigatory Powers Act (Ripa) to snoop on people suspected of minor offences such as dog fouling or putting out rubbish on the wrong day.
But she defended councils' right to use the powers against suspected rogue traders or fly tippers.
Ms Smith will say she wants applications for the use of Ripa to go to the top of organisations, such as the chief executive of a council rather than the head of trading standards or environmental health.
The home secretary said: "While the vast majority of the investigations that are carried out under Ripa are important - like protecting the public from dodgy traders, trapping fly tippers who dump tonnes of rubbish on an industrial scale across the countryside, or tackling the misery caused by noisy and disruptive neighbours - there are clearly cases where these powers should not be used.
"I don't want to see these powers being used to target people for putting their bins out on the wrong day, for dog fouling offences, or to check whether paper boys are carrying sacks that are too heavy."
Shadow home secretary Dominic Grieve, for the Conservatives, welcomed the government's "belated acknowledgement that RIPA powers were being abused" but warned its promised curbs did not go far enough.
"We would restrict the use of RIPA powers by local authorities only to crimes which could require a prison sentence.
"We would also require judicial approval for town hall use of surveillance powers. In addition, the council leader would have to sign off any RIPA approval," said Mr Grieve.
He added: "It is ridiculous that, under Labour, a lower ranking council official can intercept communications on suspicion of dog fouling but a police officer has to fill out over a dozen hours worth of forms just to follow a known burglar."
Mr Huhne, for the Lib Dems, said: "Ministers must make it clear that powers designed to fight terrorism should not be used willy-nilly as a catch-all solution to every problem."
The police can use Ripa powers to carry out surveillance, along with 474 local authorities in England, every fire service and NHS trust, prisons, the Environment Agency and the Royal Mail - although this list may be trimmed under the new regulations.
Most of the 519,260 applications made under the act in the past financial year were from the intelligence services and the police.
But local authorities are also routinely using the powers, with a survey in April suggesting covert surveillance had been carried out against such relatively trivial matters as dog fouling and littering.
In April this year, it emerged that Poole Borough Council in Dorset had used Ripa to spy on a family for three weeks to find out if they were really living in a school catchment area.
The council said the case was treated as potential criminal activity, which justified the use of the act.
The powers also came under attack after a council in Cambridgeshire admitted using them to spy on paperboys suspected of working without permits.
Earlier this month the European Court of Human Rights ruled that two men from South Yorkshire should not have had their DNA and fingerprints retained by police.
Neither man had been convicted of any offence.
The judges said keeping the information "could not be regarded as necessary in a democratic society".