The European Parliament has rejected a proposal made by Ireland and three other member states to force telecoms firms to retain the phone records of customers for three years.
The proposed framework decision, which was initiated by Ireland, France, Britain and Sweden, would make it obligatory for EU firms to store data for use in criminal and terrorist investigations.
The electronic records, which include traffic and location data but not the content of phone calls, text messages or e-mails, could then be shared among police in different EU countries.
However, the European Parliament voted overwhelmingly this week against the data retention proposal, which it warned could contravene the European Convention on Human Rights.
It also doubted whether any appropriate analysis of the internet data would be possible, given the volume that would be collected.
A report on the draft decision published by the parliament says there are doubts concerning the choice of the legal basis and the proportionality of the measures.
It said individuals engaged in organised crime and terrorism would easily find a way to prevent their data being traced by using phones based outside the EU member states.
The financial burden on firms would be onerous, with roughly four million kilometres of files - the equivalent of 10 stacks of files each reaching from the earth to the moon - needing to be stored by internet service-providers.
An estimate of the required investment by firms is €180 million, with annual running costs of €50 million, according to the report.
The proposal, which is supported by Minister for Justice Michael McDowell, will now be sent back to the European Council of Ministers for review.
A Department of Justice spokesman said yesterday the Minister would continue to support the data retention proposal with the other co-sponsors.
But Labour MEP Proinsias De Rossa said the proposal on data retention was now effectively a "dead duck" after the overwhelming vote against it.
However, legislation enacted last March has already mandated Irish telecoms and internet firms to store traffic and location data for three years.
The measures were included as an amendment in the Criminal Justice (Terrorist Offences) Act after the data protection commissioner issued proceedings against three telecoms firms for storing data for up to six years without any legal backing.
The data protection commissioner dropped these proceedings earlier this year.
The Government previously directed firms to store data by ministerial direction without disclosing the practice to the public.