BBC News outlines what the anti-terrorism proposals are, and examines why they are proving so controversial.
What is being proposed?
Home Secretary Charles Clarke wants to introduce "control orders" to curb the activities of suspected terrorists. The control orders would range from tagging suspects to placing them under what is effectively house arrest.
Why are they needed?
Mr Clarke says in some cases intelligence material reveals someone is a terrorist threat to the UK. They cannot be prosecuted in court because the bugging evidence is not admissible in court and/or because intelligence officials fear their sources could be revealed.
Because a law pushed through after the 11 September attacks - the Anti-Terrorism, Crime & Security Act 2001 (ATCSA) - will expire on 14 March. This piece of legislation allows the indefinite imprisonment of foreign terror suspects without trial.
The measure needed to be renewed each year. But the law lords recently ruled such detention was a breach of human rights. Now the law either needs to be renewed or replaced - with replacement seen as the best option by ministers in the wake of the law lords' ruling.
Why the big fuss?
The most controversial element initially was that the new orders would allow an elected politician, rather than a judge, to effectively deprive a British citizen of their liberty - something which critics say is the biggest threat to civil freedoms in the UK for more than 300 years.
The home secretary has given ground and said a judge should impose the orders, the worry is that Britons will be subject to restrictions without trial, or even knowing what the case or evidence against them is.
What other reservations are there?
Opponents said the bill made such fundamental changes that it should not be rushed through without more detailed examination by Parliament. For this reason they wanted it to have a "sunset clause," which would make it expire after 12 months.
Both the Tories and Lib Dems want a change in the standard of proof needed before a control order is imposed - from the judge having "reasonable suspicion" of someone having involvement in terrorism to "on the balance of probabilities".
What do ministers say?
Charles Clarke says he has made changes to the plans to take account of concerns among Labour MPs and peers, including making the bill subject to an annual renewal by Parliament.
Tony Blair said there would be no "sunset clause" or change in the standard of proof. But a compromise deal has now been offered.
A new draft anti-terrorism bill would be introduced in the autumn, giving MPs and peers ample time to consider its merits before it became law in the spring of 2006.
A report from the independent reviewer of the "control orders" could form part of their discussions.
Tory leader Michael Howard has said the offer was a sunset clause "in all but name".
What do the other parties say?
The bill was finally passed by the Lords on Friday after more than 30 hours of debate. The Tories backed the changes made by Charles Clarke. The Lib Dems were also happy with the deal proposed by the government. They stuck to their guns over the burden of proof but their amendment did not succeed.
What kind of restrictions are we talking about?
They could include:
Banning possession or use of specified articles or substances
Prohibiting the use of certain services, such as internet or phones
Restricting work or business
Restricting association or communication with certain individuals, or other people generally
Restricting the person's place of residence or who is allowed into the premises
Requiring the person to be at specified places or in a particular area at certain times or days
Restricting movements within the UK or international travel
A specific 24-hour ban on movements
Requiring the surrendering of a passport
A requirement to give access to specified people to his home
A requirement to allow officials to search his home
A requirement to let officials remove items from premises for tests
A requirement to be monitored by electronic tagging or other means
A requirement to provide information to an official on demand
A requirement to report at a specified time and place