Liberal Democrat leader Nick Clegg said that although he believes civil liberties have been neglected by governments in the pursuit of greater security the urgent challenge being faced by the government means the new data laws are necessary.
In a joint press conference with Prime Minister David Cameron, he said liberty and security must go hand in hand.
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The chancellor now faces the prospect of forming a minority government or calling for a snap election.
The 73-year-old said a return is unlikely "given the politicised atmosphere that seems to have afflicted our set."
Chancellor Philip Hammond said the UK will make a financial proposal to the EU in the next three-and-a-half weeks.