Millions of internet users in Pakistan will be unable to send emails and messages without fear of government snooping after authorities banned the use of encryption software.

A legal notice sent to all internet providers (ISPs) by the Pakistan Telecommunications Authority, seen by the Guardian, orders the ISPs to inform authorities if any of their customers are using virtual private networks (VPNs) to browse the web.

Virtual private networks allow internet users to connect to the web undetected, meaning that they can access banned websites and send emails without fear of government interception.

Pakistan's 20 million internet users have previously been banned from popular social networks, such as Facebook, because of blasphemous material about the prophet Muhammad. All internet traffic in the country travels through the Pakistan Internet Exchange, which can be intercepted by the military and civil intelligence agencies. The move echoes a crackdown against encrypted communications across the border in India and in China.

The Pakistan Telecommunications Authority legal notice urged ISPs to report customers using "all such mechanisms including EVPNs [encrypted virtual private networks] which conceal communication to the extent that prohibits monitoring". Anyone needing to use this technology needs to apply for special permission, the notice said.

Authorities in Islamabad insisted that the ban on VPN access was intended to stem communications by terrorists.

However, banks, call centres and many other businesses use encrypted connections to communicate with their branches and customers, to protect sensitive data such as account numbers and passwords.

"This is like banning cars because suicide bombers use them," said Shakir Husain, chief executive of Creative Chaos, a Karachi-based software company. "You have to find out who these guys [extremists] are. This is a blanket, knee-jerk, response."

There is strict regulation of internet traffic in Pakistan. Last year, the authorities banned the entire Facebook website for months after a user launched a contest to draw a cartoon of the prophet Muhammad. Accessing the internet on BlackBerry smartphones is problematic, because of the device's high-security encryption software.

Recently the regulator made it impossible for Pakistanis to access the website of Rolling Stone magazine, after it published an article on the high proportion of the national budget in Pakistan that goes on its military.