The government will be able to monitor the calls, emails, texts and website visits of everyone in the UK under new legislation set to be announced soon.
Internet firms will be required to give intelligence agency GCHQ access to communications on demand, in real time.
The Home Office says the move is key to tackling crime and terrorism, but civil liberties groups have criticised it.
Attempts by the last Labour government to take similar steps failed after huge opposition, including from the Tories.
A new law - which may be announced in the forthcoming Queen's Speech in May - would not allow GCHQ to access the content of emails, calls or messages without a warrant.
But it would enable intelligence officers to identify who an individual or group is in contact with, how often and for how long.
'Unprecedented step' In a statement, the Home Office said action was needed to "maintain the continued availability of communications data as technology changes".
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Nick Pickles Big Brother WatchThis is an absolute attack on privacy online”
"It is vital that police and security services are able to obtain communications data in certain circumstances to investigate serious crime and terrorism and to protect the public," a spokesman said.
"As set out in the Strategic Defence and Security Review we will legislate as soon as parliamentary time allows to ensure that the use of communications data is compatible with the government's approach to civil liberties."
But Nick Pickles, director of the Big Brother Watch campaign group, called the move "an unprecedented step that will see Britain adopt the same kind of surveillance seen in China and Iran".
"This is an absolute attack on privacy online and it is far from clear this will actually improve public safety, while adding significant costs to internet businesses," he said.
"If this was such a serious security issue why has the Home Office not ensured these powers were in place before the Olympics?"
'Surveillance culture' The previous Labour government attempted to introduce a central, government-run database of everyone's phone calls and emails, but eventually dropped the bid in the face of widespread anger.
The then Home Secretary Jacqui Smith did pursue efforts similar to those being revisited now, but the Conservatives and Liberal Democrats continued to voice their concerns.
The shadow home secretary at the time, Chris Grayling, said the government had "built a culture of surveillance which goes far beyond counter terrorism and serious crime".
Lib Dem home affairs spokesman Chris Huhne said any legislation requiring communications providers to keep records of contact would need "strong safeguards on access", and "a careful balance" would have to be struck "between investigative powers and the right to privacy".
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