Osborne said Friday's attacks in Paris, which killed more than 130 people and were claimed by Islamic State (ISIL), underscored the need to improve Britain's protections against electronic attack.
"ISIL are already using the Internet for hideous propaganda purposes; for radicalization, for operational planning too," he said in excerpts of a speech he was due to give at Britain's main intelligence-gathering centre.
"They have not been able to use it to kill people yet by attacking our infrastructure through cyber-attack," he said.
"But we know they want it and are doing their best to build it. So when we talk about tackling ISIL, that means tackling their cyber threat as well as the threat of their guns, bombs and knives."
Osborne said public spending on cyber-security would be almost doubled to a total of GBP 1.9 billion over the period to 2020 even as he prepares to announce fresh overall spending cuts next week in a bid to return Britain to a budget surplus by the end of the decade.
"It is right that we choose to invest in our cyber defences even at a time when we must cut other budgets," he said. "The Internet represents a critical axis of potential vulnerability."
Prime Minister David Cameron said on Monday that the size of Britain's intelligence agency staff would be increased by 15 percent.
Osborne said the decision to ramp up cyber defence funding had been taken before Friday's bloodshed in Paris.
"The stakes could hardly be higher - if our electricity supply, or our air traffic control, or our hospitals were successfully attacked online, the impact could be measured not just in terms of economic damage but of lives lost."
A new national cyber-security plan drawn up by the government would feature a dedicated force to ensure faster and more effective responses to major online attacks. The force would be based at Britain's GCHQ eaves-dropping centre in Cheltenham, southwest England, where Osborne was due to speak on Tuesday.
Other elements of the plan included possible cooperation between Internet service providers, with help from the government, to fend off malware attacks and block bad addresses used against British Internet users, as well as a new institute to train coders, Osborne said.
British broadband provider TalkTalk suffered a cyber-attack in October which affected 157,000 customers. This month, Britain and U.S. authorities carried out a drill with leading banks to test their response to a cyber incident in the financial sector.
© Thomson Reuters 2015
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