Industry body the Internet Service Providers Association said that code, released on this morning, failed to address concerns about the legality of the scheme and the high costs of the equipment needed to store and retrieve records.
"We need to move to a mandatory system. We don't feel a voluntary code will work it does not give enough comfort to ISPs," said secretary general Nick Lansman.
The proposals call for internet and phone companies to store subscriber data for 12 months, records of where and when e-mails and text messages are sent for six months, and web browsing activity, including website front page addresses, for four days.
But critics accused the government of failing to show a business case to justify the costs of storing data or to demonstrate what impact data retention will have on crime figures.
"Our view is that this scheme is designed to fail. The next stage is a compulsory scheme but the same issues will come up, cost, legality and justification," said Richard Clayton, spokesman for the Foundation for Information Policy Research.
Roland Perry, director of public policy at the London Internet Exchange, said that the code would be difficult for ISPs to implement, particularly where they were keeping e-mail traffic data for a few months for business reasons but needed to hold it for longer for law enforcement purposes.
“We need something that is much more definitive and robust about the status of this data. That’s the area that’s going to cause operational and procedural difficulties,” he said.
Questions have also been raised about the government's plans to review the effectiveness of the new code of practice after only three months - a move that appears to have been forced on the government by a "sunset" clause in the legislation which requires it to introduce a new scheme by the end of the year.
“I don’t see how a code that talks about data retention for 12 months can be reviewed after three months,” said Perry.
In contrast, the government's decision to rethink its plans to grant a wide range of government bodies access to email and phone records, won widespread approval from businesses.
The U-turn first revealed in Computer Weekly in November, followed a public outcry at plans that appeared to give organisations from local authorities to trading standards wide-ranging rights to email and web traffic data.
"The Home Secretary promised a fundamental rethink of our approach to regulating the access of public bodies to communications data. We have listened and delivered," said Home Office minister Bob Aisnworth.
New proposals released for consultation today, contain a range of safeguards, including seeking approval from the Interception Commissioner for release of data, limiting access to data to a limited number of purposes, and regular monitoring.
They reveal that police make around half a million requests for data a year, The Scottish Drugs Enforcment Agency, 55,000 requests and other departments 23,000, 90% of which were for subscriber data.
"When you get a home secretary admitting on the front page of the consultation that he is wrong, it is a sign that the government is listening," said Lansman.
Ian Kearns, of the Institute for Public Policy Research, which advised the government on communications policy said, "Many of those who opposed the 'snoopers charter' last summer will be able to read this document and feel the government has listened and responded."