Coming soon after revelations that Mr Bush had allowed US intelligence to monitor telephone calls to foreign destinations by Americans, the report in the newspaper USA Today sparked angry reactions by lawmakers.
Mr Bush did not deny or confirm the existence of the world's largest database, which USA Today said was set up after the September 11, 2001 attacks.
But he asserted that the US intelligence community is not "mining or trolling" through the private lives of Americans, simply attempting "to intercept the communications of people with known links to Al-Qaeda and related terrorist organisations."
"After September 11, I vowed to the American people that our government would do everything within the law to protect them against another terrorist attack," Mr Bush said at the White House.
"If al-Qaeda or their associates are making calls into the United States or out of the United States, we want to know what they're saying," said the president.
Massive database
The program outlined by USA Today detailed a National Security Agency database of tens of millions of US phone customers.
The newspaper quoted sources as saying the NSA analysed the calling patterns of records provided by the AT and T, Verizon and BellSouth companies.
Names, addresses and other forms of personal identification are not part of the information, the report said, but it noted that those details can be easily obtained by cross-checking the records against other databases.
The president sought to reassure the public that "the privacy of ordinary Americans is fiercely protected," under the anti-terrorism programs.
Nevertheless, the revelations unleashed a new barrage of criticism from lawmakers from Bush's Republican Party and the opposition Democratics.
Senator Arlen Specter, the Republican chairman of the Senate Judiciary Committee, reflected the widespread Congress concern.
"The danger is privacy is being invaded. It's a program of big, big brother," the top lawmaker told CBS television.
Specter said intelligence efforts should be focussed on suspected Al-Qaeda members overseas.
"Our government must have every effective and legal tool needed to fight terrorism," Senator Harry Reid, the Democratic leader in the Senate, said in a statement.
"Unfortunately, the American people have less and less confidence that the administration has an effective strategy for waging the 'war on terrorism' or being candid about its actions," Senator Reid said.
Another top Democrat, Senator Chuck Schumer questioned: "Why do they need so many innocent peoples information? Whats the legal justification? Who has access to it? What protections are in place to prevent massive violations of privacy?"
NSA defends actions
Mr Bush's administration was thrown on the defensive in December by reports on the eavesdropping on foreign telephones calls without first obtaining a warrant from a special court.
But as with the previous case, Mr Bush insisted that all intelligence activities he has authorised are "lawful" and have been explained to "appropriate members of Congress."
Separately, White House spokeswoman Dana Perino said the leaks to the media damage US security, and "hurts our ability to defeat this enemy."
The eavesdropping was defended by General Michael Hayden, the former NSA chief who is now Bush's nominee to head the Central Intelligence Agency. The new controversy could harm his chances of getting a comfortable confirmation in Congress.
General Hayden said that "anything the NSA does is legal". General Hayden and other supporters of the surveillance assert that had such a program’s been in place before the September 11, many of the Al-Qaeda hijackers who took part in the attacks probably would have been detected.