Details about text messages, phone calls, emails and every website visited by members of the public will be kept on record in a bid to combat terrorism.
The Government will order broadband providers, landline and mobile phone companies to save the information for up to a year under a new security scheme.
What is said in the texts, emails or phone calls will not be kept but information on the senders, recipients and their geographical whereabouts will be saved.
Direct messages to users of social networking sites like Facebook and Twitter will also be saved and so will information exchanged between players in online video games.
The information will be stored by individual companies rather than the government.
The news has sparked huge concerns about the risk of hacking and fears that the sensitive information could be used to send spam emails and texts.
Nick Pickles, director of privacy and civil liberties campaign group Big Brother Watch, said: ‘Britain is already one of the most spied on countries off-line and this is a shameful attempt to watch everything we do online in the same way.
‘The vast quantities of data that would be collected would arguably make it harder for the security services to find threats before a crime is committed, and involve a wholesale invasion of all our privacy online that is hugely disproportionate and wholly unnecessary.
‘The data would be a honey pot for hackers and foreign governments, not to mention at huge risk of abuse by those responsible for maintaining the databases.It would be the end of privacy online.
‘The Home Secretary may have changed but it seems the Home Office’s desire to spy on every citizen’s web use and phone calls remains the same as it was under Labour.
‘At a time when the internet is empowering people across the world to embrace democracy, it is shameful for one of the world’s oldest democracies to be pursuing the kind same kind of monitoring that has a stranglehold on civil society in China and Iran.’
It is believed the Home Office started talks with communication companies a few months ago and could officially be announced in May.
The plans have been drawn up by home security service MI5, MI6 which operates abroad, and the GCHQ, the governments communication headquarters which looks after the country’s Signal Intelligence.
Security services would then be able to request information on people they have under surveillance and could piece together their movements with information provided.
Mobile phone records are able to show within yards where a call was made from and emails will be tracked using a computer’s IP address.
Security services are said to be concerned about the ability of terrorists to avoid tracking through modern technology and are believed to have lobbied Home Secretary Theresa May to introduce the scheme.
According to The Sunday Times ministers are planning to include the spy initiative called the Communications Capabilities Development Programme in the Queen’s speech in May.
Jim Killock, executive director of the Open Rights Group, said: ‘This would be a systematic effort to spy on all of our digital communications.
‘No state in history has been able to gather the level of information proposed,’ he said to The Sunday Times.