U.K. officials say live monitoring is necessary to fight terrorism and crime. However, critics have doubts about whether such a vast system can be kept secure, the paper said.
The British security service MI5 currently conducts limited e-mail and website intercepts only under warrants from the home secretary, the paper said.
According to The Sunday Times, the government's eavesdropping center, GCHQ, has already been allocated 1 billion British pounds ($21 billion) to finance the first stage of the project.
Hundreds of secret probes are believed to be installed on two of the country's biggest Internet and mobile phone providers - BT and Vodafone - to monitor customers live, the paper said.
According to The Sunday Times, no formal decision had yet been taken but sources said that officials had agreed in principle to the program.
"Any suggestion of the government using existing powers to intercept communications data without public discussion is going to sound extremely sinister," the paper quoted Dominic Grieve, the shadow home secretary, as saying.
