Nick Clegg has warned against "knee-jerk" reactions to the Woolwich murder, restating his opposition to the "snooper's charter".
Home Secretary Theresa May and Defence Secretary Philip Hammond have called for the legislation to be resurrected in response to the killing of Drummer Rigby in Woolwich last week.
The Deputy Prime Minister said measures in the Communications Data Bill were "disproportionate" and "unworkable", despite claims from Cabinet colleagues that the legislation was necessary to ensure public safety.
Mr Clegg also warned any measures to ban radicals such as Anjem Choudary from TV screens would make them heroes to extremist groups.
The controversial communications legislation would require internet companies to retain records of emails and social media messages for a year and allow police and security agencies to access the data, but not the content of messages.
The Deputy Prime Minister said: "We have got to react in a calm way but also a forensic way in deciding exactly what we can do to stop that kind of radicalisation, extremism taking root in individuals and communities."
He added: "Very important parts of what was proposed just weren't workable because the industry, the Facebooks, the Googles, and all these people upon whose co-operation we rely to go after the bad people just said it wasn't really workable in its present form. Other aspects of it have always struck me as perhaps being disproportionate."
On his regular phone-in show on LBC 97.3 Mr Clegg insisted he was not seeking to limit the powers available to the police and security services.
He said: "I have never suggested that the very considerable powers that our security services and the police have; far in excess, by the way, of many other forces in other parts of the world; should in any way be rolled back.
"Quite the reverse, I'm actually saying in one important respect; matching IP addresses to individual phones and mobile appliances; we should take further action."
Clegg came under fire over the weekend from one of own peers Lord Carlile, who accused the Lib Dem leader of bringing the Communications Data Bill to a halt for "purely political" reasons, and former Conservative leader Michael Howard suggested the party should join forces with Labour to get new laws passed if Liberal Democrats continue to prevent reform.
But Mr Clegg said: "I don't think it is responsible of me or any politician to just disengage from the detail, not deal with the difficult dilemmas here of proportionality and workability and simply make sweeping statements, particularly in the immediate, highly emotive, aftermath of such a terrible and horrific act as we saw last Wednesday. Previous experience suggests that's when we start making mistakes.
"I think the British public want us politicians to strike this very difficult balance of protecting the freedoms, the democracy, the traditions of liberty which these horrific extremists and terrorists want to threaten. They want us to strike the right balance between protecting those but also giving the security services and the police the proportionate, workable tools to keep us safe."
But despite critics arguing the legislation would infringe privacy and act as a recruiting sergeant for terror groups, Defence Secretary Hammond told LBC 97.3 radio's Nick Ferrari show yesterday that it would help preserve civil liberties by protecting citizens and troops from the threat posed by violent extremists.
"Once a suspect is detained, the urgent need is to discover who else is in his network and who else might be about to commit a similar act,” he said.
"The danger that we've got, as technology develops, more and more communications are carried out over the internet, Voice Over Internet Protocols, Skype and so on, that the police and security services lose that ability to track that traffic.
"Of course, we have to do this in a way that is sensitive to the concerns about preserving civil liberties. But we preserve our civil liberties by making sure that those who want to murder our citizens and soldiers on our streets can be tracked and monitored and dealt with so that can't cause that kind of mayhem."