Tensions between Conservatives and Liberal Democrats over how to counter the terrorism threat from extremists have been exposed as Paddy Ashdown accuses Tory ministers of "kneejerk" responses and of stoking fear in the minds of the British people.

The former Liberal Democrat leader and former high representative for Bosnia and Herzegovina, writing in the Observer, also criticises David Cameron for ill-judged rhetoric that he says could alienate ordinary Muslims and hamper the battle to defeat jihadis.

Ashdown's intervention comes as Cameron and the deputy prime minister, Nick Clegg, try this weekend to hammer out a package of anti-terrorism measures in time to announce them to the House of Commons when MPs return from their summer break on Monday.

On Friday the level of threat of a terrorist attack in the UK was raised to "severe" by the Joint Terrorism Analysis Centre (JTAC) due to fears about British jihadis returning from Iraq and Syria. This prompted Cameron to warn that the danger posed by Islamic State (Isis) extremists presented the biggest security threat of modern times, surpassing that of al-Qaida.

While not attempting to deny or play down the threat from jihadis returning to the UK, Ashdown says that the threat level in Northern Ireland has also been "severe" for the past four years, as it was in all of Britain for much of the 1980s and 1990s when the IRA posed the greatest danger.

He argues that the current threat is "one we have faced before and one we know how to deal with – effectively, without panic and without a whole new range of executive powers which could endanger our liberties.

"Indeed, when it comes to facing threats, it was surely far more difficult to cope with IRA terrorists slipping across the Irish Sea than it is to stop jihadis returning from Iraq."

In terms that are bound to anger many Tories, he says that after the threat level was increased, senior Conservatives "from the prime minister downwards … took to every available airwave to tell us how frightened we should be and why this required a range of new powers for them to exercise".

While he argues that Cameron appeared, initially, to be aware of the need to avoid over-hasty responses, Tory ministers had recently "indulged in a spasm of kneejerking which would have made even St Vitus feel concerned. And Labour, frightened as always when it comes to liberty and security, capitulates to the demand."

On his LBC radio phone-in show last week, Clegg, whose party prides itself on standing up for civil liberties, denied that the current regime of so-called Tpims –Terrorist Prevention and Investigation Measures – which are the successors to control orders, were a soft option and defended their use.

However, the deputy prime minister appeared to concede that further measures to strengthen Tpims could be necessary.

"I care as much as anyone else about the safety of the British public, that sometimes you need to take these unorthodox measures, which is what both control orders and terrorism prevention investigation measures are," he said, adding "then there's the debate about exactly how you design them".

Ashdown takes aims at Cameron's claims that the battle with Isis is about defending British or "western values".

"Here it is not Mr Cameron's proposals that I fear, it is his rhetoric. He recently told us that this fight was about defending 'western values'. I cannot think of any phrase, short of those used by George Bush during the Iraq war, which more damages our ability to win this battle. For it at once confirms the jihadis' Manichean view that this is indeed a struggle between the west and them, while at the same time alienating those very Islamic moderates, whose help we need most in defeating Isis and its cohorts.

"The truth is that this increasingly brutal and dangerous battle will not be won for our 'western values' but for the universal values which underpin and unite all the world's great religions and philosophies – including, perhaps especially at this moment – Islam.

"The point here, which the government is studiously missing is that the best defence for Britain lies, not in action on the domestic front, but on the international one.

"The biggest danger we face, is not returning jihadis, but a widening religious war which threatens, not just to engulf the Middle East and change its borders, but to spread across the entire global Islamic community with potential consequences for peace on a much wider scale."

At an EU summit in Brussels on Saturday night Cameron was expected to launch a fresh push for measures which would make it easier to track the movement of potential jihadis. This included an attempt to restart stalled plans which would allow police and security services across the EU to share airline passenger details. The plans have been blocked in the European parliament amid concerns over civil liberties.

The change in threat levels to "severe" means a terrorist attack is considered "highly likely", although the home secretary, Theresa May, stressed there was no specific intelligence. "The increase in the threat level is related to developments in Syria and Iraq where terrorist groups are planning attacks against the west," May said.

"Some of those plots are likely to involve foreign fighters who have travelled there from the UK and Europe to take part in those conflicts."