The HS2 high-speed rail company had the power to gather private data on people opposed to the controversial scheme, official documents reportedly said.
It has been forced to withdraw a document that reportedly stated it could gather sensitive information about the opponents' sexual orientation, mental health and political views.
HS2, which is a non-departmental government body, withdrew its publicly-available privacy notice after the Sunday Express found it contained provisions that would allow it to access and "process personal data".
The data could include details of individuals' sexual orientation, trade union affiliation, criminal record, physical and mental health, according to the newspaper.
The firm said it would ensure no "inappropriate" information was being held.
Privacy notices are the most common way organisations can be transparent with individuals about how their personal data will be used, according to the Information Commissioner's Office.
HS2's notice said data could be collected on staff and suppliers but also complainants and litigants, including those who may be objecting to the £55.7 billion railway or claiming compensation.
The privacy notice said the data would mainly be gathered "primarily from individuals" but that the company could also collect personal data, where legal, from third parties including healthcare, social and welfare advisers or practitioners, HM Revenue and Customs, law enforcement and security agencies and relatives, guardians or other people associated with the individual.
It would then be held indefinitely and could potentially be passed on to third parties, including those outside the European Union not covered by the Data Protection Act, the Sunday Express said.
HS2 insisted the privacy notice does not reflect the way it handles information and said it would examine its files to ensure it does not hold any "inappropriate" data.
It withdrew its privacy notice, which was freely available on the Government's website, hours after being contacted by the Sunday Express, the newspaper said.
A spokesman for HS2 said: "We have withdrawn the privacy notice with immediate effect. It does not reflect how we handle information.
"We will carry out an audit on data to ensure we do not hold anything inappropriate. At no point has HS2 Ltd used any information held for financial gain, and nor do we intend to.
"We only share information with suppliers that require them to carry out work on our behalf, in line with the Data Protection Act."