Significant changes need to be made to the draft communications data bill, according to the committee responsible for scrutinising the proposed legislation.
The bill, if enacted, would require UK broadband providers to log a greater proportion of subscribers' online activity, and make this information more readily available.
However, Lord Blencathra, Chair of the Joint Committee, said there needs to be "some substantial re-writing of the bill" if it is ever to come before MPs.
He said a better balance must be struck between the needs of law enforcement and other agencies, and the right to privacy for broadband users.
"There is a fine but crucial line between allowing our law enforcement and security agencies access to the information they need to protect the country and allowing our citizens to go about their daily business without a fear, however unjustified, that the state is monitoring their every move," Lord Blencathra stated.
"Whilst the Joint Committee realise that there are specific data types which are not currently available, and which would aid the work of law enforcement bodies and the security services, we are very concerned at how wide the scope of the bill is in its current form."
The comments were supported by Deputy Prime Minister Nick Clegg, who acknowledged the fact the Joint Committee had made "a number of serious criticisms".
Concerns over scope, proportionality, cost, checks and balances mean the government needs to have a "fundamental rethink" about this legislation, the Liberal Democrat Leader said.
"We cannot proceed with this bill and we have to go back to the drawing board," he stated.
Mr Clegg said that law enforcement agencies must be given the powers they need to fight crime, but this must be done in a proportionate way that balances security and liberty.