The Home Secretary claimed that storing details of a person's conversations by telephone, computer or website was vital to prevent further terrorist atrocities.
Activities which will be subject to snooping for the first time include visits to social networking sites such as Facebook, auction sites such as Ebay, gaming websites and chatrooms.
Home Secretary Jacqui Smith has unveiled plans for a massive expansion of 'Big Brother' state surveillance, covering every phonecall, e-mail, text message and internet visit in Britain
Police and security services will not be able to access the precise content - but will know each site visited, and to whom and when a phonecall, text message or email was sent. This could be accessed within an hour of being sent, in virtual 'real time', sources say.
If this sets alarm bells ringing, and they are concerned about a person's activities, they could seek a ministerial warrant to intercept exactly what is being sent - including the content.
The billions of pieces of data, likely to be stored for at least a year, could even be kept on a giant Government database, officials said. The cost is estimated to be at least £1billion, and could be far higher.
The proposals were last night attacked by MPs and privacy groups as 'Stalinist', 'Orwellian' and a reversal of the presumption a person is innocent until proven guilty. One opponent said: 'They are making us all suspects'.
And a leaked memo written by sources close to the project revealed it was fraught with difficulties.
Officials are split between placing the vast amount of personal data to be collected on the huge central database - or forcing individual service providers, such as internet companies, to store the information, to be accessed on demand.
Currently, the option being worked on is to request data from the service providers, the memo reveals. They are likely to pass on extra costs to customers.
The memo says that while the Interception Modernsisation Programme - the name given to the Whitehall team working on the project - favoured a vast database, some Home Office officials viewed this as 'impractical, disproportionate, politically unattractive, and possibly unlawful from a human rights perspective.'
Ms Smith herself admitted the public had reason to be concerned.
In a speech to the Ippr think-tank, she said: 'Of course, even if there had not been events (data losses), the British public would have every right to be sceptical about a state activity that involves the collection of data. 'They should be sceptical and questioning about the processes that we already use.'
But she said that, without increasing their capacity to store data, the police and security services would have to consider a 'massive expansion of surveillance'
Security sources say terrorists, wise to the fact the authorities can already store some e-mail and phone records, were adapting their techniques.
These include communicating via social networking sites, or on computer games consoles which are linked to the internet.
Ms Smith insisted councils would not have access to the mass of new data. Those who can request the piles of new information will be limited to police and the security services, to investigate crime.
But critics pointed to past examples of legislation, once passed, being extended to local authorities. These include the anti-terror Regulation of Investigatory Powers Act, which is now used by councils to trap people for the most minor offences.
Shadow Home Secretary Dominic Grieve said: 'These proposals would mark a substantial shift in the powers of the state to obtain personal information on individuals.
Given the Government's poor record on protecting data and running databases there needs to be a full and proper debate. The Government must present convincing justification for such an exponential increase in the powers of the state.
'The public will also be acutely aware of how, under this Government, surveillance powers designed to combat terrorism and serious organised crime have been used by local authorities to investigate things like fly-tipping. This would be absolutely unacceptable.'
Consultation on the plans will begin early next year, with a Bill expected to follow by the end of 2009 or 2010.
Originally, legislation had been planned for the upcoming Queen's Speech, but officials say there is insufficient time, as the subject is so complex and controversial.
Liberal Democrat 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.
'This Government has repeatedly shown that it cannot be trusted with sensitive data. 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.These proposals are incompatible with a free country and a free people.'
Phil Booth, of the NO2ID privacy campaign, said: 'This is the Stalinist vision which we always knew was on the agenda. Monitoring the entire population is a complete abhorrence, reversing the presumption of innocent until proven guilty and making us all suspects.'
NO2ID added: 'The Home Secretary talks about 'principles' but the only principle she appears to be acquainted with is convenience for the stalker state. Monitoring your communications is as intrusive as searching your home. It ought to only be permitted as part of a specific investigation and only on a warrant from a judge.'
But senior security and police services were adamant that, without the new powers, lives would be put at risk. They said some investigations have already been affected by criminals who use technology to avoid detection, by plotting online through social networking sites or interactive games.
'Criminals are getting more sophisticated in using this technology and they are going to exploit it unless we do something,' one source said.
Ms Smith said: '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 the database in the interests of investigating lower level criminality under the spurious cover of counter-terrorist legislation.'
Richard Thomas, the Information Commissioner, has described the proposal as 'a step too far for the British way of life,' and Shami Chakrabarti, director of the human rights group Liberty, said the proposals will 'do nothing to make us safer.'