New powers, enacted by the personal decree of Home Secretary Jacqui Smith, make it compulsory for phone companies to store data on all calls for one year.
Minister for Security and Counter-terrorism Tony McNulty said the data could provide three levels of information, the simplest being about the phone's owner.
"Local authorities can just get the subscriber information next to that number. The second level of data is not simply the subscriber, but also the calls made by that phone," McNulty said.
"And the third level which is purely for the security forces, police, etc, is not just the subscriber information and the calls made, but also the calls coming in and location data - where the calls are made from," he told the BBC.
But the new law was criticized by opposition political parties and human rights groups as yet another example that the government is making the UK into a "surveillance society."
Civil rights group Liberty said that "people were more concerned than ever about their personal privacy, especially how many bodies had access to their phone records".
"There are actually a very broad range of purposes for which this information about who we've been phoning and when can be revealed," said Liberty director Shami Chakrabarti.
She said that requests for information would not be limited to those concerning serious crime and national security and that the danger was that a profile can be built up about who a person speaks to and when.
Nick Clegg, Liberal Democrat home affairs spokesman accused the government of "creating new surveillance state powers with no meaningful public or parliamentary debate."
The initiative was said to have been formulated in the wake of the Madrid and London terrorist attacks. Previously since 2004, phone companies have provided data, when requested, on a voluntary basis.
By 2009, the Government plans to extend the rules to cover internet use, including websites visited, email records and phone calls made online.
