Electronic surveillance and collection of personal data are "pervasive" in British society and threaten to undermine democracy, peers have warned.
The proliferation of CCTV cameras and the growth of the DNA database were two examples of threats to privacy, the Lords constitution committee said.
Those subject to unlawful surveillance should be compensated while the policy of DNA retention should be rethought.
The government said CCTV and DNA were "essential crime fighting tools".
But surveillance and data collection must be proportionate, it added.
Civil liberties campaigners have warned about the risks of a "surveillance society" in which the state acquires ever-greater powers to track people's movements and retain personal data.
Controversial government plans for a database to store details of people's phone calls and e-mails were put on hold late last year after they were branded "Orwellian".
There can be no justification for this gradual but incessant creep towards every detail about us being recorded and pored over by the state
Ministers are currently consulting on the plan, which would involve the details but not the content of calls and internet traffic being logged, saying it is essential to fighting terrorism.
In its report, the Lords constitution committee said growth in surveillance by both the state and the private sector risked threatening people's right to privacy, which it said was "an essential pre-requisite to the exercise of individual freedom".
The public were often unaware of the scale of personal information held and exchanged by public bodies, it said.
"There can be no justification for this gradual but incessant creep towards every detail about us being recorded and pored over by the state," committee chairman and Tory peer Lord Goodlad said.
'Misuse of powers'
Among areas of most concern were the growth of CCTV cameras, of which there are now an estimated four million in the UK.
The use of cameras should be regulated on a statutory basis with a legally binding code of practice governing their use, the committee said.
There was evidence of abuse of surveillance powers by some councils, with cameras wrongly being "used to spy on the public over issues such as littering".
The UK's DNA database is the "largest in the world", the report concluded, with more than 7% of the population having their samples stored, compared with 0.5% in the US.
Judicial oversight of surveillance
Privacy impact assessments for new data collection schemes
Better regulation of the DNA database and reassessment of time samples are held
Binding code of practice for use of CCTV cameras
More powers for information commissioner and new parliamentary committee to study data issues
Police in England, Wales and Northern Ireland can take DNA and fingerprints from anybody arrested on suspicion of a recordable offence and the samples can be held indefinitely whether people are charged or not.
Campaigners say anyone not convicted of a crime should have their DNA removed, a position endorsed by the European Court of Human Rights in a recent ruling in the case of two British men.
Ministers should comply with this ruling quickly, peers said, and legislate for a new regulatory framework for the database.
Other recommendations include a requirement for any new data scheme to be preceded by a public assessment of its impact on privacy and for the Information Commissioner to be given powers to carry out inspections on private companies.
"The huge rise in surveillance and data collection by the state and other organisations risks undermining the long-standing tradition of privacy and individual freedom which are vital for democracy," Lord Goodlad added.
"If the public are to trust that information about them is not being improperly used, there should be much more openness about what data is collected, by whom and how it is used."
The government said CCTV and DNA were "essential crime fighting tools" but acknowledged personal data should only be used in criminal investigations where necessary.
"The key is to strike the right balance between privacy, protection and sharing of personal data," a Home Office spokesman said.
"This provides law enforcement agencies with the tools to protect the public... while ensuring there are effective safeguards and a solid legal framework to protect civil liberties."
Home Secretary Jacqui Smith has rejected claims of a surveillance society as "not for one moment" true and called for "common sense" guidelines on CCTV and DNA.
She recently announced a consultation on possible changes to the Regulation of Investigatory Powers Act, under which public bodies can conduct covert surveillance and access data, to clarify who can use such powers and prevent "frivolous" investigations.
The Conservatives said the government's approach to personal privacy was "reckless".
"Ministers have sanctioned a massive increase in surveillance over the last decade, at great cost to the taxpayer, without properly assessing either its effectiveness or taking adequate steps to protect the privacy of perfectly innocent people," said shadow justice secretary Dominic Grieve.
Civil rights campaigners Liberty welcomed the report.
Director Shami Chakrabarti said: "Liberty's postbag suggests that the House of Lords is more in touch with public concerns that our elected government.
"Over the past seven years we've been told 'nothing to hide, nothing to fear' but a stream of data bungles and abuses of power suggest that even the innocent have a lot to fear."
Return to internet news headlines
View Internet News Archive