But Charles Clarke warned on Tuesday that the Prevention of Terrorism Bill enabled such a step to be taken in the future if the need arises, noting that tough measures are necessary as the threat of a terrorist attack in the country looms large.
Opposition parties argue that the proposals - which include limits on using computers and telephones - give too much power to the home secretary, who will issue the so-called control orders.
"Let no one be of any doubt that there are terrorists here and abroad who want to attack the United Kingdom and its interests," Clarke told parliament when presenting the measures.
Some people feel that the absence of a September 11-style attack in Britain "means that the terrorist threat has somehow passed us by", he said.
"That view in my view is short-sighted, complacent, ignorant of the facts and potentially cavalier in its disregard to the safety of this country," Clarke said.
While falling short of empowering the home secretary to detain suspects in their own home, the bill gives him the potential to request such an order if the level of threat to Britain is deemed sufficiently critical.
It also enables the home secretary to issue less stringent orders such as banning someone from using a computer or restricting their movement, but the person affected would have the right to appeal to a judge.
"Were the current situation to worsen we could find ourselves in a position where it is imperative that we are able to place a particular individual or individuals under an obligation to remain in his or her home at all times"
The police and security authorities "support the measures in the bill which allow me to impose obligations up to but not including a 'requirement to remain in a particular place at all times'," Clarke told parliament.
Security officials had advised him that house arrests, at present, are not necessary, he said, while warning that the situation could change.
"Were the current situation to worsen we could find ourselves in a position where it is imperative that we are able to place a particular individual or individuals under an obligation to remain in his or her home at all times," Clarke said.
To do so, the interior minister must issue an order to opt out of article five of the European Convention on Human Rights.
"You are planning to sacrifice essential, long-standing principles of British liberty and justice in a way which may act to reduce that security"
UK Shadow Home Secretary
Clarke's counterpart in the opposition Conservative Party, David Davis, argued that while the terror threat facing Britain is severe, it did not warrant such an infringement on people's freedom.
"You are planning to sacrifice essential, long-standing principles of British liberty and justice in a way which may act to reduce that security," Davis told the home secretary.
"Under these proposals, for the first time, a politician will be able by order to restrain the liberties of a British subject."
Clarke's proposals have triggered further controversy after it was announced that he hopes to rush it through the House of Commons in just two days - restricting time for proper debate.
In Britain, draft legislation is required to pass through the elected House of Commons followed by the unelected House of Lords before it is signed into law.
Failure to promulgate the measures would potentially leave Britain without any anti-terror rules after the Anti-Terrorism, Crime and Security Act 2001, deemed unlawful by the House of Lords in December, expires on 14 March.
The Law Lords, the country's highest court, ruled on 16 December that detaining foreign terror suspects indefinitely without trial violated human-rights laws.
In the last few weeks, two of 12 foreign terror suspects who were jailed indefinitely without trial have been released on bail, with one of them placed under house arrest, lawyers said.