Britain's surveillance agency GCHQ and the National Security Agency of the US intercepted and retained webcam images of millions of people.
Yahoo denied prior knowledge of the programme and accused the agencies of "a whole new level of violation of our users' privacy".
The Guardian reported on Thursday night that secret documents revealed that, from 2008 to 2010, a surveillance program codenamed Optic Nerve intercepted and stored webcam images of millions of people from all over the world.
The GCHQ programme saved one image every five minutes from Yahoo users' video conversations. The conversations included large volumes of sexually explicit images.
The documents reveal a struggle to keep the large store of sexually explicit photos collected by Optic Nerve, away from the eyes of GCHQ's employees.
Edward Snowden's leaked documents prove that this programme began its test phase in 2008 and was active even in 2012. The documents described these users as unselected and categorised data collection as bulk than targeted.
Like the images themselves, the metadata associated with the videos are very valuable to intelligence agencies. The metadata can reveal the identity of people by linking them to their email addresses and location data.
This data has the potential to destroy peoples' lives if the information is leaked to the public and there is nothing preventing an employee of GCHQ from revealing data for personal reasons.
The intelligence value from video sources have long been known to the NSA and GCHQ, a research document from the mid-2000s stated: "One of the greatest hindrances to exploiting video data is the fact that the vast majority of videos received has no intelligence value whatsoever, such as pornography, commercials, movie clips and family home movies."
"The NSA and its UK accomplices show no respect for the rule of law," Julian Assange had said in a statement in response to revelations of the GCHQ spying, on Wikileaks a few days ago.
"The US government deployed elements of state power to pressure European nations into abusing their own legal systems and GCHQ is engaged in extensive hostile monitoring of popular publisher websites and its readers," he added, referring to Wikileaks.
Interestingly, just two days ago, the NSA had asked the Foreign Intelligence Surveillance Act court for permission to store millions of phone records of foreign nationals beyond the five-year limit currently imposed on the agency.
The Department of Justice argued that they need to retain the data as "evidence" because of the privacy lawsuits filed after Snowden revealed the administration's digital dragnet.