The UK is losing the war against Internet crime, an influential group of MPs has warned.
Despite being the preferred target of online criminals in 25 countries, the UK is still "complacent" towards e-crime as victims are "hidden in cyberspace", the Home Affairs Select Committee said.
The group of MPs said sufficient funding and resources for tackling online crime, which includes identity theft, industrial espionage, credit card fraud and child exploitation, has not been allocated.
Tougher sentences for online criminals and improved training for police officers are recommended by the Committee to deal with the growing threat of cyber criminality.
Committee chair Keith Vaz MP said: "We are not winning the war on online criminal activity. We are being too complacent about these E-wars because the victims are hidden in cyberspace. The threat of a cyber attack to the UK is so serious it is marked as a higher threat than a nuclear attack.
"You can steal more on the Internet than you can by robbing a bank and online criminals in 25 countries have chosen the UK as their number one target. Astonishingly, some are operating from EU countries.
"If we don't have a 21st century response to this 21st century crime, we will be letting those involved in these gangs off the hook."
The group of MPs also called for a service similar to anti-online child abuse group Internet Watch Foundation to be formed for tackling the spread of terrorist material online.
Vaz said: "Young people are increasingly radicalised online by the words of radical clerics such as Anwar al-Awlaki on YouTube or Internet magazine Inspire. What starts on the web, ends up on the streets of Woolwich."
Internet-based crime - committed by lone hackers, activist groups and nation states sponsoring industrial espionage - has been estimated by online security firm Norton to globally cost around 388 billion US dollars (£250bn) in financial losses.
The Committee heard that the National Fraud Intelligence Bureau had discovered about 25 countries predominantly targeting the UK and it was "deeply concerned" that EU partner countries are not doing enough to prevent cyber-attacks from criminals on the UK.
In light of the rise of e-crime, the group of MPs recommended that more police officers are trained in digital crime detection and equipped with digital forensic skills.
But as improved awareness among Internet users could help tackle e-crime, the Committee also wants the Government and the private sector to educate users and maintain awareness of the threat.
Commissioner Adrian Leppard, of City of London Police, the most senior policeman in the country on online fraud, told the Committee that the UK is not winning the war on e-crime. He also warned that a quarter of the 800 specialist Internet crime officers could be axed as spending is cut.
The Committee said it was "clear that sufficient funding and resources have not been allocated to the law enforcement responsible for tackling" e-crime.
Detective Chief Superintendent Charlie McMurdie, head of the Police Central e-Crime Unit, told the MPs that e-crime sentences were too lenient.
The Committee said it was "surprised" hackers from the group Anonymous, who cost Paypal more than £3.5m, were given sentences of seven and 18 months.
The Committee's report said it did not "believe" they would have received such sentences had they physically robbed a bank of £3.5m and called on the Director of Public Prosecutions, the head of the Crown Prosecution Service, to review sentencing guidance.
It also found that the was a "black hole" where low-level e-crime is going unpunished because criminals who defraud victims of a small amount of money are often not reported to or investigated by law enforcement and banks simply reimburse victims.
Steve Williams, chairman of the Police Federation of England and Wales, which represents tens of thousands of rank and file police officers, said "It is extremely concerning that relentless cuts to policing are continuing at a time when there is a burgeoning cyber-crime industry.
"This report highlights how the Government message that its reforms are working because crime is falling is one which is over-simplistic and misleading. It is also rightly acknowledges that online crime can play a direct role in other offences being committed.
"Crime is clearly changing, not falling at the rate the figures suggest, and an unknown but extremely high number of offences are going unreported. The police service needs greater, not fewer, resources to deal with the challenges of the 21st century."
Turning to online child abuse, the Committee said it was alarmed that the Child Exploitation and Online Protection (CEOP) centre is having its budget cut by 10 per cent over four years and its chief executive Peter Davies is leaving.
Last week, David Cameron threatened to impose tough new laws on Internet giants if they fail to blacklist key search terms for horrific images by October as part of a wider crackdown on online porn.
The Prime Minister set out a raft of reforms to protect children, including introducing family-friendly filters that automatically block pornography unless customers choose to opt-out.
A Home Office spokesman said: "Crime is at record low levels and this government is taking action to tackle the cyber threat, investing more than £850m through the national cyber security programme to develop and maintain cutting-edge capabilities.
"The National Crime Agency will include a new elite National Cyber Crime unit to target the most serious offenders and provide enhanced intelligence for CEOP so they can protect even more children from harm.
"But we know we need to keep pace with criminals as they target the web and so we continue to consider ways to ensure the police and security services have access to communications data."