Dame Stella Rimington, giving a keynote speech at the RSA Conference Europe in Vienna, said advancements in encryption made information gathering a lot more difficult, but added the advantages outweighed the disadvantages.
"Every development in protecting information makes it more difficult for the intelligence services to access that information," she told delegates.
She said agencies must work together with security vendors and organizations to better understand encryption and ensure technology does not protect terrorists. She said there were cases where "encryption has been a problem momentarily, but we have always overcome it."
She pointed to battery life and the decreasing size of batteries as having the greatest impact on the work of the intelligence services.
"The size of battery needed to power remote microphones used to make it very difficult to conceal. It is now become a good deal easier to conceal such things," she said.
She said spies will increasingly rely on the quality and security of the technologies they use, "although human resources are vital they must be supported and supplemented by technology."
Mobile phones and caller location had had a transforming effect on her department during her time there and this had given MI5 an edge over terrorists. "These people do have to talk to each other. They have to communicate and that makes them vulnerable," she said.
The ability to share information securely across countries also proved useful to MI5.
"When I started, all information was put down on paper and then filed. Sharing that information literally meant putting boxes of files in a vehicle and driving them across London," said the former spy chief.