The so-called snooper's charter is set to face a series of new legal challenges after the EU's highest court ruled government's "general and indiscriminate retention" of emails is illegal.
Only targeted information gathering is justified, the European Court of Justice said, boosting the case against the sweeping collection of emails, text messages and internet data.
The Investigatory Powers Act passed into law in November, granting the government far-reaching new abilities meaning they can now indiscriminately hack and store data relating to internet use.
The case was brought to the European Court by Brexit Secretary David Davis, despite his role in seeking to leave the bloc.
He was joined by Deputy Labour Leader Tom Watson in bringing the case and the pair had already had gained a high court victory on the issue.
But after the Government appealed the decision, the case was taken to the European court.
The decision could prove inconsequential after the UK withdraws from the EU, when the European Court of Justice will no longer jurisdiction over the Government.
Yet the ruling is an embarrassment for Theresa May, who has faced stiff opposition to the controversial law.
Mr Watson: "This ruling shows it's counter-productive to rush new laws through Parliament without a proper scrutiny.
"At a time when we face a real and ever-present terrorist threat, the security forces may require access to personal information none of us would normally hand over.
"That's why it's absolutely vital that proper safeguards are put in place to ensure this power is not abused, as it has been in the recent past.
"Most of us can accept that our privacy may occasionally be compromised in the interests of keeping us safe but no one would consent to giving the police or the government the power to arbitrarily seize our phone records or emails to use as they see fit.
"It's for judges, not ministers, to oversee these powers. I'm pleased the court has upheld the earlier decision of the UK courts."
Martha Spurrier, director of Liberty, which supported the MPs in bringing the case said: “Today’s judgment upholds the rights of ordinary British people not to have their personal lives spied on without good reason or an independent warrant.
"The Government must now make urgent changes to the Investigatory Powers Act to comply with this.
“This is the first serious post-referendum test for our Government’s commitment to protecting human rights and the rule of law.
"The UK may have voted to leave the EU – but we didn't vote to abandon our rights and freedoms.”
The Government has vowed to appeal against the decision.
A Home Office spokesperson said: “We are disappointed with the judgment from the European Court of Justice and will be considering its potential implications.
“It will now be for the Court of Appeal to determine the case. The Government will be putting forward robust arguments to the Court of Appeal about the strength of our existing regime for communications data retention and access.
“Given the importance of communications data to preventing and detecting crime, we will ensure plans are in place so that the police and other public authorities can continue to acquire such data in a way that is consistent with EU law and our obligation to protect the public.”
