Police will get new powers under the bill
Conservative and Liberal Democrat peers have warned the government there will be no "blank cheque" for its Anti-terrorism Bill.
Peers fear that the bill, which includes plans to detain terrorist suspects without trial, ranges too widely and is being rushed through Parliament too fast.
Ministers argue the Anti-Terrorism, Crime and Security Bill - scheduled for eight days of debate in the Lords - is a "proportionate" response to the terrorist threat.
On Tuesday, the bill was given an unopposed Second Reading in the Lords, which rose at 0055 GMT.
It passes on Wednesday to the committee stage, where peers are likely to table amendments and voice objections from all sides of the House.
The bill, which would also create a new offence of inciting religious hatred, easily cleared its Commons stage after just three days of debate, despite revolt by 21 Labour MPs.
Peers began their scrutiny by voicing their determination to see major changes made before the measures become law.
'Premature plans'
The government has been accused of rushing through ill-conceived and "illiberal" legislation as a knee-jerk response to the terror attacks of 11 September.
Such criticism continued as Conservative home affairs spokesman Lord Dixon-Smith said the bill was in need of "intensive care".
The Tory peer likened the plans to a "premature baby dragged kicking and screaming into the world far too soon".
He was worried the scope of the bill went too far, creating powers that were right for tackling terrorism but wrong for fighting crime in general.
Liberal Democrat spokesman Lord McNally urged his fellow peers to use their "collective wisdom and experience".
The legislation could be improved by using the knowledge of some of the most distinguished lawyers in the land, he continued.
Lord McNally agreed it was right to close legal loopholes that terrorists could exploit.
But the government had to "make its case" with the right approach to civil liberties and human rights.
Race relations fears
Away from the political parties, the Rt Rev Christopher Mayfield, Bishop of Manchester, gave a stark warning about the dangers the measures held.
Particularly criticising extension of police powers, he said: "Much of the good work that has been done in improving community relations in the past few years could be undone by heavy handed introduction of the bill."
Fears about the plans were also voiced by two former home secretaries.
Conservative peer Lord Waddington argued the religious hatred offence could be used against intemperate language and "more against Muslims than those who vilify them".
There were cautionary words too from Liberal Democrat Lord Jenkins of Hillhead, who as a Labour minister introduced the Prevention of Terrorism Act in 1974 after the Birmingham pub bombing.
While it was an "entirely human and particularly ministerial reaction" to want to react, Lord Jenkins said something was not necessarily better than nothing.
Home Office Minister Lord Rooker defended the anti-terror plans as a "moderate and precautionary response", which generally commanded whole-hearted public support.
He emphasised how the events of 11 September showed how the nature of security threats had changed.