Finance minister Philip Hammond on Tuesday warned Britain will "strike back" against states hacking into strategic networks in order to avoid a military showdown, as part of a new cyber-defense plan.
Unveiling the £1.9 billion ($2.3 billion, 2.1 billion euro) National Cyber Security Strategy, Hammond said hackers were trying to capitalize on the increasing connectivity of devices to target homes, cars, air traffic control networks and power grids.
"A small number of hostile foreign actors have developed and deployed offensive cyber-capabilities. These capabilities threaten the security of the UK's critical national infrastructure," he said at the London launch.
"If we do not have the ability to respond in cyber-space... we would be left with the impossible choice of turning the other cheek and ignoring the devastating consequences or resorting to a military response.
"We will not only defend ourselves in cyber-space, we will strike back in kind when we are attacked," he added.
The finance ministry earlier called on businesses to "up their game" in the fight against cyber-crime, with Hammond adding that "government can't deliver innovation -- that's something that only businesses and entrepreneurs can do".
However, he promised that the government would take "a more active cyber-defence role" to "block, disrupt an neutralize malicious activity... and make Britain to be the best place in the world to be a tech business".
The funding will try to reduce the impact of cyber-attacks and stop viruses and spam emails reaching strategic targets.
Hammond said the government would strength law enforcement capabilities in a bid to deter would-be hackers and announced a new Cyber Security Research Institute to improve the security of smartphones, tablets and laptops.
"We must now keep up with the scale and pace of the threats we face," said Hammond.
"Our new strategy, underpinned by £1.9 billion of support over five years and excellent partnerships with industry and academia, will allow us to take even greater steps to defend ourselves in cyber-space and to strike back when we are attacked."