Theresa May's plans for a "snoopers' charter" were in crisis last night after Nick Clegg called for a "fundamental rethink" of plans to give sweeping powers to the police and the security services to monitor everyone's internet use.
A parliamentary committee condemned the moves as disproportionate, an invasion of privacy and drawn up without proper consultation.
In a damning report, it also condemned the Home Office for supplying "fanciful and misleading" estimates of how much the project would cost the taxpayer.
The Lib Dems are now preparing to block the draft Communications Data Bill, which has been widely condemned by civil liberties groups as well as several Conservative MPs.
Mr Clegg said: "The Coalition Government needs to have a fundamental rethink about this legislation. We cannot proceed with this Bill and have to go back to the drawing board."
He put himself on a collision course with Ms May who still wants the plans to go ahead. She argues the moves are essential to catch terrorists, criminal networks and paedophile rings which turn to increasing sophisticated forms of communication to evade detection.
Under her plans, public bodies would be able to instruct internet service providers to store information about every website visit, as well as emails, mobile calls and messages sent on social media, webmail and Skype. The data collected would include the time, the duration and recipient of communications, but not their contents.
But the committee, which was set up at Mr Clegg's insistence to scrutinise the proposals, sounded the alarm over the scheme. It condemned the Bill as unjustified and intrusive and called for the plans to be substantially rewritten.
It acknowledged there was a case for legislation to take account of technological advances, but protested that the Bill paid "insufficient attention to the duty to respect the right to privacy and goes much further than it need or should for the purpose of providing necessary and justifiable official access to communications data".
Ms May insisted: "The longer we leave it, the harder it will be for the police and security services to get on with their job of saving lives."