A private company could be asked to run a huge database containing details of all telephone calls, emails and internet use, it has been reported.
The option to tender out the management of the database will be included in a consultation paper to be published next month, according to the Guardian.
Home Secretary Jacqui Smith said access to such data was key to fighting terrorism but with proper safeguards.
Critics have said the idea poses a serious threat to civil liberties.
Former director of public prosecutions Sir Ken Macdonald reiterated his opposition to the plan in light of the Guardian's report, dismissing official claims that additional legal assurances would ensure the information is not misused.
He told the paper: "All history tells us that reassurances like these are worthless in the long run. In the first security crisis the locks would loosen."
The database, which critics claim would cost up to £12bn, is not intended to record the content of communications, but only the details of internet sites visited and what emails and telephone calls have been made, to whom and at what times.
"I think doing nothing is not an option here if we are going to see our ability to deal with serious crime and terrorism actually eroded in the future"
Currently the information has to be requested from communications companies and internet service providers, but it is not always readily available.
On the issue of private sector involvement in the database, government sources said the consultation had not begun and it was premature to speculate on what it would contain and what the outcome would be.
As for the database itself, the home secretary said the UK had to adapt to technological changes if it wanted to get access to data necessary to fighting terrorism and organised crime effectively.
"It is a difficult and sensitive area, which is why we will consult on a range of options," Ms Smith said of the issue.
"But I think doing nothing is not an option here if we are going to see our ability to deal with serious crime and terrorism actually eroded in the future."
Addressing Sir Ken's criticisms, she said she was "sure" he would want the state to do all it could to stop terrorist attacks and to catch dangerous criminals.
"Of course there are concerns," she added.
"It is why we will consult with people about what sort of safeguards will be put in place."
Opposition
Ministers had initially intended to legislate this year on proposals to create a communications database but dropped a planned bill from December's Queen's Speech in favour of a consultation exercise.
Opposition parties have vowed to fight the proposal, describing it as an onslaught on personal privacy.
David Davis, the former shadow home secretary, has said a future parliamentary battle over the issue would make this year's debate over extending pre-charge detention to 42 days - an issue which led him to resign his seat - look like a "picnic".
The Lib Dems also oppose the plans, describing the idea of the database as "Orwellian".
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