"It has been suggested that GCHQ uses our partnership with the United States to get around UK law, obtaining information that they cannot legally obtain in the United Kingdom. I wish to be absolutely clear that this accusation is baseless," he told the House of Commons today.
"Any data obtained by us from the United States involving UK nationals is subject to proper UK statutory controls and safeguards, including the relevant sections of the Intelligence Services Act, the Human Rights Act and the Regulation of Investigatory Powers Act.
"Our intelligence-sharing work with the United States is subject to ministerial and independent oversight and to scrutiny by the intelligence and security committee. Our agencies practise and uphold UK law at all times, even when dealing with information from outside the United Kingdom."
Speaking yesterday Hague insisted that "law-abiding" British people had "nothing to fear" from the activities of GCHQ, which is said by the Guardian newspaper to have gathered 197 intelligence reports through Prism in the 12 months to May last year, an 139 percent year-on-year increase.
In his statement to parliament today Hague said he receives hundreds of operational proposals from GCHQ each year.
"To intercept the content of any individual's communications within the UK requires a warrant signed personally by me, the Home Secretary or another secretary of state," he said.
"This is no casual process. Every decision is based on extensive legal and policy advice. Warrants are legally required to be necessary, proportionate and carefully targeted and we judge them on that basis.
"Considerations of privacy are also at the forefront of our minds as I believe they will have been in the minds of our predecessors. We take great care to balance individual privacy with our duty to safeguard the public and the UK's national security.
"These are often difficult and finely judged decisions and we do not approve every proposal put before us by the agencies."
Hague added that authorisations given by himself and the Foreign Secretary are reviewed by an intelligence services commissioner and interceptions of communications commissioner, both of whom report directly to the prime minister.
However Hague said there is a strong need to update the "tools we have at our disposal" to monitor modern communications, which he said "are changing more rapidly then at any point in history". He said that government will bring forward new proposals for the Communications Data Bill, which would bring in new powers to monitor online communications. An earlier versions of the bill was shelved following concerns over its impact on privacy.
Media reports claim that under Prism the NSA carried out surveillance on customers of major US technology firms such as Facebook, Google, Microsoft and Yahoo. Reports said information was gathered both on customers living outside the US, as well of Americans who communicated with people abroad.
The Guardian newspaper claimed to have documents showing "the NSA has been able to obtain unilaterally both stored communications as well as real-time collection of raw data for the last six years, without the knowledge of users".
Firms like Facebook and Google responded saying they don't allow the NSA "direct access" to their systems, and the US government has issued its own rebuttal.
James R. Clapper, the US director of National Intelligence, issued a fact sheet claiming that Prism does not allow the US government to "unilaterally obtain information from the servers of US electronic communication service providers" and instead "facilitates the targeted acquisition of foreign intelligence concerning foreign targets located outside the United States".
The UK parliamentary Intelligence and Security Committee will produce a report into GCHQ's relationship to the Prism programme for the UK prime minister but Hague would not guarantee this report will be presented to parliament or the public.