Cameron was to give a statement to the House of Commons after 3:30 pm (20:00 IST) on fresh steps against suspects when there is insufficient evidence to charge them with a crime.
British media reported that the measures could include a "temporary bar" on Britons suspected of fighting in Syria and Iraq from returning home.
Other measures could include making it easier to strip suspected would-be jihadists of their passports in Britain and giving more data on airline passengers to the intelligence services.
The move, which means an attack is considered "highly likely", came after the killing of US journalist James Foley, apparently by a man with an English accent who belonged to the jihadist group Islamic State (IS).
The threat level is now at the second highest out of five possible categories, its highest since July 2011.
Cameron has warned that the advance of IS raises the prospect of "a terrorist state on the shores of the Mediterranean."
"What we're facing in Iraq now with ISIL is a greater and deeper threat to our security than we have known before," he said at a Downing Street press conference Friday.
Negotiations were reportedly still going this morning, just hours before Cameron was due to deliver his statement.
Civil liberties are a key part of the centre-left Liberal Democrats' political philosophy and the party will be reluctant to back steps it sees as too draconian ahead of next year's general election.
In an indication of the unease felt by some, former Liberal Democrat leader Menzies Campbell, a member of Parliament's Intelligence and Security Committe, said it could be illegal to stop British citizens returning home.
"At the very least it's the kind of question which will be tested here in our own courts and perhaps also in the European Court of Human Rights.
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