Home Secretary David Blunkett announced the new plans in response to the 11 September terrorist attacks on America.
The proposals will be part of a wide-ranging bill that is expected to come before parliament in November.
The Home Secretary's plans will come as a serious blow to e-business campaigners who have fought against Section 12 of the Regulation of Investigatory Powers (RIP) Act, which requires ISPs to bear the cost of storing data.
The Confederation of British Industry (CBI) said the new legislation could add to the cost for business, dent consumer confidence and harm e-commerce.
Senior e-business adviser Pamela Taylor said: "This extends beyond the reach of the RIP Act. Businesses realise there is a new political climate but will want proof that any new measures will actually combat terrorism.
"If users feel their privacy is being infringed upon it will harm consumer confidence. This new legislation will obviously also mean additional costs to ISPs and there is a very real danger of severe damage being done to the long-term growth of e-commerce," she said.
IT security expert Peter Sommer, from the London School of Economics, also believes that e-commerce could suffer from the new anti-terror laws.
He said: "It will put an additional expense on ISPs and this will be reflected in the costs that people pay for the service."
Caspar Bowden, director of the Foundation for Information Policy Research which campaigned against the RIP bill, fears the new surveillance powers could be broadened once they are in use.
He explained: "The great fear is that this new legislation will be used for broader surveillance such as the type we fought against in the Regulation of Investigatory Powers Act. This new information could be used to tackle minor crime and even snoop on campaign groups such as anti-globalisation protestors."
Bowden joined Sommer in expressing doubt as to how effective the new laws would be in combating terrorism.
Sommer said: "All it is going to achieve is the capture of legitimate traffic between people with regular accounts. There are not enough specialists in Middle East politics/strategy and too much emphasis is placed on electronic surveillance."