The government last year gave permission to intercept the phone calls, letters and e-mails of more than 500,000 citizens, its interception watchdog reports.
The annual report of interception of communications commissioner, Sir Paul Kennedy, showed the government's interception programme targets people in the UK and overseas.
Liberal Democrat spokesman Chris Huhne said: "It cannot be a justified response to the problems we face in this country that the state is spying on half a million people a year (one in 78 citizens). We have sleepwalked into a surveillance state but without adequate safeguards."
Sir Paul said interception had played a key role in preventing murders, tackling large-scale drug importations, evasion of excise duty, people smuggling, gathering intelligence both within the UK and overseas on terrorist and various extremist organisations, confiscation of firearms, serious violent crime and terrorism.
More than 600 central, local and quasi government bodies are entitled to ask for intercept data, he said. This is related mainly to who contacted whom, where and when.
Sir Paul said public authorities made 504,073 requests for communications data to communications and internet service providers. This was slightly fewer than in the previous year. In the same period 595 errors were reported. About three quarters were attributable to public authorities and the rest to communication service providers (CSPs) and internet service providers (ISPs).
He said errors could have "catastrophic consequences" for individuals. In one case, police investigating a paedophile ring asked an ISP for subscriber information relating to an internet protocol (IP) address, but received the wrong physical address. As a result police arrested a person who was completely innocent, he said.
"In this case there was confusion between the ISP and the public authority over how the data should be interpreted, particularly in relation to the critical international time zones. Better checks and balances have been put in place to help clarify the process," he said.
Sir Paul maintained his opposition to the use of intercept evidence in trials. He said live tests of a proposed system in March and April had highlighted legal and operational difficulties. "I cannot see a way to safely overcome these," he said.
He had visited nine CSPs and ISPs consisting of the Royal Mail and the communications companies who are most engaged in interception work and been impressed by their professionalism and dedication.