The legal framework surrounding surveillance is "unnecessarily complicated" and "lacks transparency", a Parliamentary committee says.
A report by the Intelligence and Security Committee (ISC) also says the current powers of UK security agencies to access private communications should be replaced by a single law.
Its inquiry has considered the impact of such activities on people's privacy.
It began after leaks in 2013 about surveillance by US and UK agencies.
Edward Snowden, a former US intelligence contractor, who now lives in Russia after fleeing the US, gave the media details of extensive internet and phone surveillance.
'Patterns and associations'BBC security correspondent Gordon Corera said Mr Snowden's revelations raised concerns in some quarters that spies had accrued too much power in secret.
The committee's report looked at whether current legislation provides the necessary powers, what the privacy implications are and whether there is sufficient oversight and accountability.
Following it's publication, Shami Chakrabarti, director of rights campaign group Liberty, said the ISC was "a simple mouthpiece for the spooks".
Among its findings, the report said that the UK's intelligence and security agencies "do not seek to circumvent the law" and that its activities do not equate to "blanket surveillance" or "indiscriminate surveillance".
It also said the Government Communications Headquarters (GCHQ) agency requires access to internet traffic through "bulk interception" primarily in order to uncover threats by finding "patterns and associations, in order to generate initial leads", which the report described as an "essential first step".
"Given the extent of targeting and filtering involved, it is evident that while GCHQ's bulk interception capability may involve large numbers of emails, it does not equate to blanket surveillance, nor does it equate to indiscriminate surveillance.
"GCHQ is not collecting or reading everyone's emails: they do not have the legal authority, the resources, or the technical capability to do so."
'Adequate' powersThe ISC also said that it had established that bulk interception methods cannot be used to search for and examine the communications of an individual in the UK unless GCHQ "first obtain a specific authorisation naming that individual, signed by a secretary of state".
It added: "While we accept that they need to operate in secret if they are to be able to protect us from those who are plotting in secret to harm us, the government must make every effort to ensure that information is placed in the public domain when it is safe to do so.
"Nevertheless, there is more that could and should be done. This is essentialsto improve public understanding and retain confidence in the vital work of the intelligence and security agencies."
Ms Chakrabarti said the ISC was "so clueless and ineffective that it's only thanks to Edward Snowden that it had the slightest clue of the agencies' antics".
She added: "The committee calls this report a landmark for 'openness and transparency' - but how do we trust agencies who have acted unlawfully, hacked the world's largest SIM card manufacturer and developed technologies capable of collecting our login details and passwords, manipulating our mobile devices and hacking our computers and webcams?"
But Nigel Inkster, from the International Institute for Strategic Studies, told the BBC's Today programme that the security and intelligence agencies had "pretty adequate" powers of surveillance, which should remain.
He added: "What we're talking about here is the bulk collection of civilian telecommunications, something which has actually been going on for decades without obvious detriment to civil liberties or human rights, in order for the intelligence agencies to identify very narrow and specific sets of information about threats."
Surveillance revealedJimmy Wales, founder of Wikipedia, called the bulk collection of data "incredibly dangerous" and "exactly what the East German Stasi would have salivated to have".
But Baroness Neville-Jones, the former chair of the UK Joint Intelligence Committee, said security staff "jettison" any surplus information, once their intelligence gathering is complete.
"You cannot actually sort through and get the clues that you need in the absence of actually collecting the information in order to do that," she said.
The inquiry heard evidence in public and in secret, and among those to appear publicly were:
Also published on Thursday is the annual report from the judge who oversees the interception of communications by spies and the police.
It will provide details on the number of times this had occurred, and any errors or misuse.
In June 2013 the Guardian reported that GCHQ was tapping fibre-optic cables that carry global communications and sharing vast amounts of data with the NSA, its US counterpart.
The paper revealed it had obtained documents from Mr Snowden showing that the GCHQ operation, codenamed Tempora, had been running for 18 months.
Although GCHQ did not break the law, the Guardian suggested that the existing legislation was being very broadly applied to allow such a large volume of data to be collected.
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