The Home Secretary and Justice Secretary claim the intelligence agencies can no longer monitor a quarter of all communications data as a result of technological advances, in a letter to all Conservative MPs that also seeks to explain proposals to allow surveillance of email and internet use.
They insist that the Coalition respects civil liberties and has cut back state intrusion, but add: "We must not allow the internet to become an unpoliced space, with criminals free to go about their business with abandon."
The four-page letter signed by both ministers was sent out by Tory whips on Thursday morning, after a week in which separate proposals to strengthen the hand of the security services in fighting crime and terrorism have been criticised by MPs and peers from all political parties.
Nick Clegg and the Joint Committee of Human Rights led the attacks on the Justice and Security Green Paper, which would allow a minister to order a secret hearing in any civil court case or inquest where national security was deemed to be at risk.
The Deputy Prime Minister also suggested that the plan to force internet service providers to store details of customers' messages and web browsing, so that data could be monitored in real-time by GCHQ, would only be published in draft form rather than a proper Bill in next month's Queen's Speech.
In their letter, the two secretaries of state - who have clashed repeatedly over crime and human rights - write: "There has been a lot of press coverage in recent days about two of our key policies to maximise public protection: on communications data capability and the Justice and Security Green Paper.
"We are committed to maintaining national security and protecting the public in the face of changing circumstances whilst continuing to honour our commitment to protect civil liberties."
On the "secret justice" plan, they claim that the inability for cases to be heard under Closed Material Proceedings - in which defendants are not shown the evidence against them and must rely on security-vetted lawyers called Special Advocates - leaves the Government unable to deport suspected terrorists or deny them a passport, because it cannot reveal sensitive evidence in open court.
"In judicial reviews of such decisions, there is no statutory basis for closed material procedures to be available to the court.
"This means the Government is unable to fight the case and may have to allow British citizenship to an individual believed to be engaged in terrorism-related activity, for example, because the courts have no secure forum to handle the appeal process."
The ministers also cite the 16 former Guantanamo Bay detainees who received "large sums" of compensation because the Government could not disclose "highly sensitive intelligence material" against them in court, and so settled the case.
On the surveillance proposals, the ministers claim that criminals are using internet-based communications services such as Skype and instant messaging rather than making phone calls, which can be traced under existing powers.
"We estimate that we are now only able to access some 75 per cent of the total communications data generated in this country, compared with 90 per cent in 2006. Given the pace of technological change, the rate of degradation could increase, making our future capability very uncertain."
They insist that the police and other agencies "will have no new powers or capabilities to intercept and read emails or telephone calls".
Nick Pickles, director of the campaign group Big Brother Watch, said: "The letter fails to answer nearly all of the serious questions raised in the past week and ignores the very real concerns expressed by MPs of all parties and a parliamentary committee enquiry.
"It is essential that any expanded surveillance is technically feasible and will not undermine public safety, or cripple businesses with new costs. No detail has been offered to allay any of these fears.
"Home Office Ministers continue to hide behind the same national security rhetoric used to justify ID Cards and 90 day detention. In continuing to fail to provide any evidence or substantiate what their policy actually is the public will conclude that they were right to be concerned."
