The UK must do more to stop online fraud and deter state-sponsored cyber-espionage or risk losing the fight against e-crime, MPs have warned.
The Home Affairs Select Committee said much low-level internet-based financial crime was falling into a "black hole" and was not reported to the police.
The MPs said more officers should be trained in digital crime detection and e-crime experts protected from cuts.
The Home Office said the authorities must "keep pace" with criminals.
Publishing its first report on the subject, the cross-party committee said e-crime took various forms, did not recognise national borders and could be committed "at almost any time or in any place".
'Off the hook'
It called for a dedicated cyber-espionage team to respond to attacks, many of which are believed to be backed by foreign governments because they are so sophisticated.
Offences range from attacks on computer networks and the use of viruses to steal data to the use of cyberspace to facilitate traditional crimes such as forgery, sabotage, drug smuggling and people trafficking.
The committee said it was worried by the evidence it had heard during its inquiry about the UK's e-crime fighting capability.
It said it had been told by Adrian Leppard, deputy assistant commissioner at the City of London Police, that up to a quarter of the UK's 800 specialist internet crime officers could be lost due to budget cuts.
This was despite evidence the UK was a prime target for many of the 1,300 criminal gangs specialising in fraud.
A quarter of the gangs, many of which are based in eastern Europe and Russia, use the internet as their principal means of deception.
The MPs said police cutbacks came on top of proposed 10% cuts to the budget of the Child Exploitation and Online Protection Centre.
"At a time when fraud and e-crime is going up, the capability of the country to address it is going down," the report concluded.
"Ministers have acknowledged the increasing threat of e-crime but it is clear that sufficient funding and resources have not been allocated to the law enforcement responsible for tackling it."
As well as calling for a cyber-espionage team, the report's recommendations include:
- Requiring banks to report all e-fraud, however small, to the police
- Obliging web firms to explain data security tools to new users
- Prosecutors to review sentencing guidance for e-crimes
- Increased funding for European e-crime co-operation
- Mandatory code of conduct for removal of indecent material
- New body to report on and remove online terrorist content
Keith Vaz, the Labour MP who chairs the committee, said the UK's response to e-crime was too "fractured".
He told BBC 5 live: "Our country is the number one target for gangs in 25 countries."
He added: "It's much easier and more lucrative to steal on the internet than it is to go out and rob a bank.
"These are real e-wars. At the moment we are not winning the e-wars."
Mr Vaz said the gangs committing e-crimes were "predominantly" from eastern Europe, including European Union countries such as Romania.
The UK's eavesdropping centre GCHQ suggested earlier this year that 80% of cyber-attacks could be prevented by better management of information online.
The Police Federation of England and Wales said the MPs' report was further evidence that recent figures showing a 10% fall in recorded crime last year were "misleading".
Javed Khan, chief executive of the charity Victim Support, called the findings "worrying", adding: "E-criminals cannot be allowed to get ahead of our police and their partners."
And Matthew Fell, of the CBI business group, questioned the need to "force businesses to report a cyber attack as soon as it happens", adding that the they "should instead be focusing on fighting the attack privately".
He said reporting could even prove "counterproductive" and put firms "at greater risk".
The government announced increased funding for cyber-security in 2010, while a single National Cybercrime Unit will be formed later this year as part of the new National Crime Agency.
Deputy Chief Constable Peter Goodman, who speaks for the Association of Chief Police officers on e-crime, said the new unit would bring a "real step change in our response to e-crime".
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."
He said the new cybercrime unit would "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," the spokesman added.