As the Government's centrepiece Immigration Bill enters committee stage in the House of Lords, the Joint Committee on Human Rights (JCHR) said it fears the main purpose of the power to deprive citizenship is to target naturalised Britons while they are abroad.
The group of MPs and peers said the clause in the immigration bill would risk breaching the UK's international obligations to the state which admitted the British citizen to its territory.
Committee chair Dr Hywel Francis MP said: "The UK has historically been a champion of efforts to reduce statelessness throughout the world and it is disappointing to see this position shift in such a dramatic way.
"The new power will lead to an increase in the number of stateless people and exposes British citizens to the risk of being left stateless."
A Home Office spokesman said: "Those who threaten this country's security put us all at risk. This Government will take all necessary steps to protect the public.
"These proposals will strengthen the Home Secretary's existing powers to ensure that very dangerous individuals can be excluded from the privileges attached to citizenship. We will carefully consider the JCHR's report and will respond fully in due course."