David Cameron has announced new laws to crack down on terror suspects as he warned that extremism in Iraq and Syria poses a greater danger to Britain than al-Qaida.
As the terror threat was raised from substantial to severe, the Prime Minister said legislation would make it easier to seize jihadists' passports.
"What we are facing in Iraq now with IS is a greater threat to our security than we have seen before," he told a Press conference in Downing Street.
Mr Cameron said the intelligence services believed that at least 500 Britons had gone to fight in Syria and Iraq.
Although the Government has already taken steps to counter the threat of returning jihadists, he admitted there were "gaps to fill" in the country's armoury.
The Prime Minister, who will announce details of the new laws on Monday, warned IS was effectively a rogue state run by terrorists.
"We could be facing a terrorist state on the shores of the Mediterranean and bordering a Nato member," he added.
And he warned the group had "designs on expanding to Jordan, Lebanon, right up to the Turkish border".
The statement came as the Joint Terrorism Analysis Centre raised the threat level from substantial.
It means a terrorist attack is considered "highly likely", although Home Secretary Theresa May stressed there was no specific intelligence.
Speculation is mounting that the Government could bow to pressure for terrorism investigation and prevention measures to be beefed up. Addressing the rumours, Mr Cameron said: "My first priority as Prime Minister is to make sure we do everything possible to keep our people safe.
"The ambition to create an extremist caliphate in the heart of Iraq and Syria is a threat to our security.
"The terrorist threat was not created by the Iraq War 10 years ago – the terror threat existed even before the horrific attacks on 9/11
"This threat cannot be solved simply by dealing with perceived grievances over Western foreign policy. Nor can it be dealt with by addressing poverty, dictatorship or instability in the region.
"The root cause is a poisonous ideology of Islamist extremism that is condemned by all faiths and faith leaders."