Chief constables will be forced to justify the legality of recording thousands of law-abiding protesters on secret nationwide databases, the government's privacy watchdog announced today.

Christopher Graham, the information commissioner, said he had "genuine concerns about the ever increasing amount" of personal data held by police.

Graham's move came after the Guardian revealed how police have developed a covert apparatus to monitor people they consider are, or could be, "domestic extremists", a term which has no legal basis.

Photographs and personal details of thousands of activists who attend demonstrations, rallies and political meetings are being stored on the databases. Surveillance officers are given so-called "spotter cards" to identify individuals who may "instigate offences or disorder" at demonstrations.

Alan Johnson, the home secretary, was today forced to defend the police for labelling protesters "domestic extremists". He said: "I haven't issued any guidance [to police] on the definition of that phrase. The police know what they are doing, they know how to tackle these demonstrations, they do it very effectively."

There were "far fewer" cases of animal rights extremism than in previous years, he said. "That's just one form of domestic extremism. If the police want to use that as a term, I certainly wouldn't fall to the floor clutching my box of Kleenex.

David Howarth, the Liberal Democrat justice spokesman, said that "an alphabet soup of agencies appears to have decided to put everyone in this country who protests about anything on a list of suspects".

"This is an example of mission creep, they have gone beyond their original intention of dealing with violent animal extremists"

Three units given the task of monitoring "domestic extremists" are run by the Association of Chief Police Officers (Acpo), including the National Public Order Intelligence Unit (NPOIU), which operates as a giant database of political activists.

David Smith, the deputy information commissioner, said: "We will raise this issue with Acpo and seek further information from them about the personal information the police are collecting.

"We do have genuine concerns about the ever increasing amounts of information that law enforcement bodies are retaining. Organisations must only collect people's personal information for a proper purpose. We will need to talk to Acpo to understand why they consider it is necessary to hold lawful protesters' details in this way, before considering whether this meets the terms of the Data Protection Act."

He also urged demonstrators who suspected they might be on a database to challenge the police. "Individuals have the right to request information that is held about them and can challenge organisations about whether, and for how long, the data should be retained."

One activist, Linda Catt, who has been told that footage of her protesting at last year's Labour party conference is being held on the NPOIU database, said she would lodge a complaint with the information commissioner about why her details are being held. Catt also discovered her vehicle was being tracked by a network of automatic number plate reading cameras at the roadside.

The development comes amid growing concern that police forces are accumulating detailed information about peaceful protesters without proper justification. The NPOIU database can access information collected and stored by individual police forces.

However, there is evidence that police forces supplying the data are not holding the information lawfully. In May, the court of appeal found against the Metropolitan police in a landmark ruling over the retention of photographs on a database run by its public order unit, CO11.

The court found the force had been unlawfully holding images of Andrew Wood, an anti-arms trade campaigner who was photographed leaving a public meeting. One judge said there were unresolved civil liberties questions about the way images were taken and retained in "the modern surveillance society".

The C011 database, which initially contained 2,500 images, has been reduced to around 1,500 images after an internal audit found that 40% of the those being held were not compliant with the ruling.

Speaking to the Guardian, the Met's assistant commissioner, Chris Allison, who is in overall charge of C011, admitted today that the Met had been forced to review its IT systems.

"The judgment made plain, and clarified for the police service, the circumstances under which we could retain images. It set down a clear set of standards for us, and as an organisation it is important that we live by those standards. Then we looked at what we could and couldn't do in light of that database."

He stressed the public order database was not – unlike another Met IT system used to log the movements of protesters named Crimint – accessed by rank and file officers. "The C011 database is just there to enable a few people within the public order branch intelligence squad to have access. This isn't routine access across the organisation."

A spokesman for the Acpo domestic extremism units said people on the database "should not be worried".

"There are lots of reasons why people might be on the database," he said. "Not everyone on there is a criminal and not everyone on there is a domestic extremist but we have got to build up a picture of what is happening. Those people may be able to help us in the future. It's an intelligence database, not an evidence database."

"Protesting is not a criminal offence but there is occasionally a line that is crossed when people commit offences."

Police forces around the country feed information about protesters into the NPOIU central database in London. Most of it comes from special branch and officers who record what people do and say at protests.

In an interview with the Guardian, Anton Setchell, the National co-ordinator of the Acpo units, gave a hypothetical example: "At such and such a time, I was on duty in whatever high street, there was this event taking place, and in amongst it I saw a man who I've known for the last three years called... He was wearing a blue shirt and at 3.05pm he stood on a podium and got a megaphone and gave a 20-minute address to the crowd."