Lord Steyn and Lord Lloyd of Berwick, who until recently sat as full-time judges in the Lords, say they are particularly concerned about powers to hold terror suspects for up to three months without charge.
Lord Steyn said such a long period of detention without trial could fall foul of the European Convention on Human Rights and Lord Lloyd said it amounted to internment.
The Government has now announced a dilution of its new anti-terrorist legislation to be published next week. Under the new proposals, people will be charged with glorifying terrorism only if it can be demonstrated they intended to encourage their audience to commit similar atrocities.
But Charles Clarke, the Home Secretary, said he was standing firm on his contentious proposal to increase the time terrorist suspects can be interrogated from 14 days to three months. The move has been fiercely opposed by the Liberal Democrats and Conservatives and could be defeated in the House of Lords.
The law lords' comments were made to the BBC's Panorama programme, to be screened on Sunday, which also highlights an apparent difference of opinion between Tony Blair and Cherie Blair on striking a balance between protecting people against terrorism and infringing civil liberties. It quotes Cherie Blair, speaking as a human rights lawyer, on 26 July this year: "It is all too easy for us to respond to such terror in a way which undermines commitment to our most deeply held values and convictions and which cheapens our right to call ourselves a civilised nation."
Lord Steyn, in his Panorama interview recorded before the Government announced its partial climb-down, said: "We live in a country that Voltaire called 'the country of liberty': isn't that being endangered?"
Lord Lloyd, who presided over the inquiry into anti-terrorist legislation for the Conservative government in 1995-96, said of the new Bill: "It says that a person commits an offence if he glorifies, exalts, or celebrates an act of terrorism whether in the past or in the future. Now to me that is a very odd provision.
"I have never seen anything like it in an Act of Parliament. And I pity the poor judge who's going to have to explain those words to a jury. Glorify, there again glorify, exalt or celebrate.
"Presumably they all mean something different otherwise you wouldn't have three words instead of one. Somebody in the Home Office must have thought they mean something different. But how is a judge going to explain the difference between those three things ?
"The essence of criminal law is that it should be clear and it must be certain. And having an offence couched in this language will in practice be unenforceable."
On the detention proposal, Lord Lloyd said: "It begins to look ... a little like internment. And it would certainly be seen that way by some of the ethnic minorities. Fancy being kept for three months without being charged. Being questioned notionally and not being charged. I think that is intolerable. By, in a sense, stirring up the fear and then saying, 'Well this is what we're going to do about it by legislating here, there and everywhere', I think that's in a sense, irresponsible."
Mr Clarke also set out plans to close mosques suspected of fostering extremism. People responsible for such places could be prosecuted, and even jailed, if they fail to act against extremist teachings.