Civil-liberties groups and opposition politicians had condemned the proposed changes to the Regulation of Investigatory Powers Act, which they called a "snoopers' charter."
Under the act, passed by Parliament two years ago, the police, intelligence agencies, Customs and Excise and the Inland Revenue Service have the authority to demand records of e-mail, mobile phone and Internet traffic.
The government proposed to extend the power to government departments such as Health and Transport, local authorities, the fire service and the Food Standards Agency. The government hailed the law as a bulwark against organized crime, but civil libertarians condemned it as the harbinger of an Orwellian state.
On Tuesday, Home Secretary David Blunkett conceded that the government had not foreseen the scale of public opposition.
"The proposals were intended to provide protection and regulation of the access to data," Blunkett said. "The rest of the world interpreted them in entirely the wrong direction."
Blunkett said the government planned to consult further before introducing new proposals to Parliament.
"We believe we got it wrong, and we need to address fears people have," he said. "If we get this right we can get protection and privacy while tackling organized crime."
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