The party is pushing for a system of "direct democracy" that would mean a referendum could be triggered by five per cent of the population — around 2.3 million people.
Mr Farage admitted that the power could be abused by lobbying groups, but insisted it would help to restore the public's faith in government.
Speaking in London, he said voters felt betrayed by the democratic system and outlined a series of measures to counter the problem, including introducing tougher measures than those planned by the Coalition on allowing voters to kick out their local MP.
Mr Farage also raised the prospect of cutting off public funding for major charities, such as Oxfam and Help the Aged, arguing it was wrong that the government should be giving cash to organisations that lobby it.
The referendum powers would be more likely to be used to stop government doing things including taking military action or introducing unpopular infrastructure projects such as the high-speed rail link between London and the north, than to make it introduce new measures, he said.