The war on terrorism should not be used as a cover to erode civil liberties, senior Liberal Democrats warned on Monday.

Following the home secretary David Blunkett's admission that the government was giving serious thought to the introduction of compulsory identity cards, Charles Kennedy, the party leader, urged the government to balance the "liberty of the individual against the threat that the terrorist presents to that very liberty".

In an emergency statement to the Liberal Democrat conference, he said that he had talked to the prime minister on Monday about "the need to balance legislation with the interests of domestic civil rights".

Senior Liberal Democrats were alarmed at the possible introduction of measures such as ID cards, believing that the government was using terrorism as an excuse to clamp down on the freedom of the individual.

Menzies Campbell, foreign affairs spokesman, said he would need "a great deal of persuasion before I will accept the necessity for compulsory ID cards". He questioned whether identity cards would be effective in combating terrorism. "If every person in Britain had had an identity card on the morning of September 11 it would have made absolutely no difference to the atrocities committed in Washington and New York."

Lord Wallace of Saltaire, the Liberal Democrat defence spokesman in the Lords, said ID cards would be a "gross mistake".

Of the 15 European Union member countries, 11 have some form of identity cards, but only six of those require citizens to carry the identification, according to Don Foster, transport spokesman.

Phil Willis, education spokesman, said: "We have seen the Labour government using increasingly centralised state management. I do not want to be managed."

The conference continued to be dominated by discussion of the international situation. Mr Kennedy called for a "proportionate response" in any military retaliation. Backing the prime minister's pledge to back the US to the hilt, he nevertheless cautioned: "Standing shoulder to shoulder, of course, but always there for the occasional cautionary tap on that shoulder." He called for Britain to be involved in all planning and risk assessment to minimise the danger to the country's armed forces.

But the mood was less restrained at a fringe debate on Iraq. Baroness Nicholson, the Liberal Democrat MEP and campaigner for democracy in Iraq, hinted that retaliation should be widened to topple Saddam Hussein, whose "fingerprints" would, she believed, be found on the attacks on the US. "I find it impossible to believe that Saddam Hussein is not involved," she said, adding: "Bringing down Saddam Hussein and putting something better in his place: that is a political fight and we need the political will to make that happen."

Dera Reshid, a member of the Iraqi National Congress, a coalition of political groups and organisations opposed to the Iraqi regime, was more blunt: "They have to take Saddam Hussein out."