Ex-Plaid Cymru leader Lord Wigley said a bill he will introduce in the Lords would ensure forces have enough money.
Prime Minister Theresa May told MPs on Wednesday her government had protected police funding since 2015 and crime was at a record low.
Lord Wigley's bill stands no chance of becoming law without government support and a lack of parliamentary time means it is unlikely to progress further.
His proposed new law would scrap the current system, where the UK government sets the police budget annually, with regional police and crime commissioners submitting "funding estimates" to the home secretary instead.
An independent adjudication body would resolve any gap between the two.
Lord Wigley said: "Police forces in Wales and in England have been subjected to sustained cuts to their budgets which have undoubtedly detracted from their capacity to support the work of the security services.
"Government funding for the police has been cut by 25% over the past five years and vital aspects of policing and public safety are now under-resourced as a result."
The UK government has said anti-terror budgets have been protected but Lord Wigley said: "Units such as safer neighbourhood teams, which carry out crucial work in support of counter-terrorism efforts, have been cut to the bone.
"Ten years ago, safer neighbourhood teams, which collect intelligence on extremist, gang and criminal activity, would have had six officers including a sergeant and two police constables and they covered, on average, one council ward each.
"Now each team has an average of just three members of staff and cover areas that are 75% bigger than before."
He said his bill sought to make sure police forces had sufficient resources to keep people safe.
"It would ensure that police budgets reflect their needs, allowing vital units such as safer neighbourhood teams to take a greater role in supporting the work of security and intelligence services," Lord Wigley added.
A change to how police are funded is to be put forward by a Welsh peer.