Panetta, during a speech at the Intrepid Sea, Air and Space Museum in New York Thursday, said his response was to increased aggressiveness and technological advances by America' adversaries, identified as China, Russia, Iran and militant groups, The New York Times reported.
"An aggressor nation or extremist group could use these kinds of cyber tools to gain control of critical switches," Panetta said. "They could derail passenger trains, or even more dangerous, derail passenger trains loaded with lethal chemicals. They could contaminate the water supply in major cities, or shut down the power grid across large parts of the country."
Pentagon officials said Panetta's views weren't exaggerated and that he was responding to a recent wave of cyberattacks on large American financial institutions.
Defense officials also acknowledged that Panetta was pushing for legislation that would require new standards at private-sector facilities such as power plants, water treatment facilities and gas pipelines where successful hacking could result in huge casualties or economic damage.
The most destructive possibilities, Panetta said in his speech to the Business Executives for National Security, involve "cyberactors launching several attacks on our critical infrastructure at one time, in combination with a physical attack."
The result would be a "cyber-Pearl Harbor that would cause physical destruction and the loss of life, an attack that would paralyze and shock the nation and create a profound new sense of vulnerability," he said.
In August, a cybersecurity bill was blocked by a group of Republicans who argued it would be too burdensome for corporations, which Panetta disputes.
"The fact is that to fully provide the necessary protection in our democracy, cybersecurity must be passed by the Congress," he said. "Without it, we are and we will be vulnerable."
Since the legislation was blocked, Panetta said President Obama was considering issuing an executive order that would promote cybersecurity information-sharing between government and private industry. But Panetta stressed he considered it a temporary measure and that private companies would cooperate fully only if required to by law. If an executive order is signed, cooperation would be voluntary.
"We're not interested in looking at e-mail, we're not interested in looking at information in computers, I'm not interested in violating rights or liberties of people," Panetta separately told the Times Thursday. "But if there is a code, if there's a worm that's being inserted, we need to know when that's happening."