Theresa May argued that the new powers were required to "help police stay one step ahead of the criminals" and vowed "ordinary people" would not be targeted.
Writing in the Sun, Mrs May insisted Britain could not afford to lose existing law enforcement tools such as the monitoring of phone records.
But she claimed security services needed to be better equipped to keep track of criminals and terror networks through their online communications.
Mrs May said: "Looking at who a suspect talks to can lead police to other criminals. Whole paedophile rings, criminal conspiracies and terrorist plots can then be smashed.
"Data like this has already helped lock away murderer Ian Huntley. Such data has been used in every security service terrorism investigation and 95 per cent of serious organised crime investigations over the last 10 years.
"But currently online communication by criminals can't always be tracked. That's why the Government is proposing to help the police stay one step ahead of the criminals."
The Home Office estimates that the programme to expand the power of police and other public bodies to trawl through private communications will cost £2billion over the first decade alone.
Under the scheme internet providers will be paid to store hundreds of millions of pieces of data for up to two years.
Concerns by Information Commissioner Christopher Graham over the proposals were revealed last night in previously restricted briefing papers.
He said keeping so much internet data is a "step change in the relationship between the citizen and the state".
Tory MP Dominic Raab said the warnings "painted a frightening picture of mass surveillance on an unprecedented scale".
He added: "The expert advice is that there is no law enforcement case for monitoring every call made and every email sent by every innocent citizen.
"Far from making us safer, these plans for Big Brother surveillance would expose us to massive fraud."
Nick Pickles, director of campaign group Big Brother Watch, said: "The Government has offered no justification for what is unprecedented intrusion into our lives."
Mrs May added: "I'm not willing to risk more terrorist plots succeeding and more paedophiles going free."
