"I can confirm that over the next five years we will substantially increase the number of people across all three secret intelligence agencies who investigate, analyse and help disrupt terrorists plots," he said in a speech.
Osborne added that Prime Minister David Cameron would provide further details at the end of the government's defence spending review on 23 November.
The Strategic Defence and Security Review is expected to set out Britain's military capability priorities for the next five years.
The government recently put forward new legislation that would give intelligence agencies sweeping new powers including the right to find out which websites people visit.
"As the nature of war, espionage and terrorism changes, we must change with it. The internet, central to modern life, provides new ways for our enemies to plan and act against us,"
Reuters quoted Osborne as saying.
"The threat from terrorists, from extreme ideologies, needs to be challenged head on", Osborne said, adding that the "probable fate" of a Russian plane that crashed in Egypt was a painful reminder of that need.
Britain has said that it was "more likely than not" that a bomb brought down the Russian plane shortly after it took off from Sharm al-Sheikh, killing all 224 passengers and crew.
The ISIL terrorists fighting Egyptian security forces in Sinai have claimed responsibility.
William Spring, a UK-based Human Rights Activist, told Press TV that Osborne’s announced plan is part of Britain’s surveillance program which he says is internationally known to be the most intrusive and the least accountable in the West.
"This proposal by Osborne is not going to make any great difference. We already have a total surveillance of UK citizens,” Spring said.
the old days, to open a letter you needed the authorization of the Home
Secretary. That was many years ago before the internet came in. Now
they just don’t need any authorization. They just pass an enabling bill
which enables them to do what they want,” he added.