On-line adversarial agent elected government is observing (7)
I believe the answer is:
espying
'is observing' is the definition.
'on-line adversarial agent elected government' is the wordplay.
'on-line' becomes 'e' (abbreviation for electronic, e.g. in ecommerce).
'adversarial agent' becomes 'spy'.
'elected' becomes 'in'.
'government' becomes 'g'.
'e'+'spy'+'in'+'g'='ESPYING'
(Other definitions for espying that I've seen before include "Catching sight of" , "Perceiving" .)