The state will be granted powers to take money directly out of bank accounts and wage slips as part of a crackdown on benefit fraud.
Private companies such as airlines will also be compelled to hand over information to investigators, under plans being drawn up by ministers for the biggest overhaul to the department's powers in 20 years.
Liz Kendall, the Work and Pensions Secretary, said it was "absurd" that her department's powers had become so outdated, with inspectors struggling to "keep pace" with complex methods employed by fraudsters.
Benefit fraud cost taxpayers a record £7.3 billion last year, official figures show, with officials blaming the rise on an "increasing propensity" for such scams since the pandemic when dozens of checks on universal credit applications were lifted.
Details of the crackdown, which is designed to save the taxpayer £1.6 billion over the next five years, come as Rachel Reeves seeks to raise £40 billion in her Budget at the end of the month.
Writing in The Telegraph, Ms Kendall said: "We're in an absurd situation where DWP's powers have not been updated for 20 years, meaning fraudsters have new ways of taking public money, and we
need to keep pace with them.
"My team are still, in 2024, sending letters to gather evidence for those suspected of welfare fraud, slowing them down to snail's pace when they could be shutting down serious fraud cases."
But on Saturday evening privacy campaigners warned the new powers would be a "blank cheque" to force companies to "snoop" on "the country's poorest citizens".
The legislation will grant benefit fraud investigators the power to recover debts from people who have previously overclaimed on their benefits.
Currently, the only way to recover this debt from former benefit claimants is to take them to court which officials say is a long and costly process.
Under the new laws, investigators would be handed the power to deduct the money directly from their bank account or pay slip. They would also be allowed to seize assets from a deceased person's estate.
Inspectors will also be given far-reaching powers to gather information during their investigations into suspected benefit fraud.
Currently, they can compel financial institutions, utilities and employers to hand over evidence - but under the new law, this would be extended to all private companies, meaning people's movements via international flights and ferries can be tracked more closely.
Silkie Carlo, director of Big Brother Watch, said: "This blank cheque to force private companies to snoop and report on the country's poorest citizens to the state is intrusive, excessive and will create a culture of fear among millions of people claiming benefits.
"For a Labour government to introduce tough investigatory powers more typical of a counter-terror context to Britain's welfare system is an alarming attack on privacy and yet another assault on the poor."
Ms Kendall said benefit fraud investigators must be given "the tools they need to fight", adding: "We're in an absurd situation where DWP's powers have not been updated for 20 years, meaning fraudsters have new ways of taking public money, and we need to keep pace with them.
She cited a recent case where a Bulgarian fraudster conned the British taxpayer out of £2.2 million over four years in an audacious scam which involved flying fellow Bulgarians into Britain and shuttling them to Jobcentres to pose as benefit claimants, before flying them home again.
Ms Kendall said that new information gathering powers will "speed up" identifying such cases, with new powers of search and seizure enabling investigators to gather evidence more quickly.
The government's Fraud, Error and Debt Bill, which will be introduced in the coming months, is a step up from similar proposals put forward by the previous government.
The Tories had planned to increase the amount of information officials could obtain from banks, but these were criticised as a "step too far".
Officials of the new government say the new laws will be "proportionate and targeted" and will not apply to the state pension.
Ms Kendall said that the idea that the state will be "snooping" on people's bank accounts as "nonsense", adding: "We are taking bold steps to ensure this power is proportionate and targeted."
She added that there will be independent oversight of the new measures, and said there will always be a "human to check" over fraud investigations to ensure they are always "right and necessary".