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The House of Lords Communication Committee rejected the argument that the rise of media fragmentation and internet news mean it is time to relax the UK's media ownership rules.

It said there has been little investment in news gathering and investigative and specialist journalism, while much of internet news is repackaged and supplied by existing providers.

It is concerned about the concentration of media ownership in a few companies, pointing out that the national newspaper industry is dominated by eight companies and one company (Rupert Murdoch's News International) accounts for 35% of all national newspaper circulation.

Four companies control 70% of regional and local newspaper circulation and in TV the BBC faces competition from only two commercial news organisations that produce national news (Sky News and ITN).

The committee wants media merger regulation to take greater account of news provision and is recommending Ofcom be given the power to initiate public interest tests.

It also wants local mergers between radio and newspaper companies to be subject to the public interest test.

It is particularly concerned about public service broadcasters, saying the current system "must be preserved" and it is "vital" that nothing be done to diminish the BBC's "pivotal role".

Commercial public service news providers need both a carrot and a stick to maintain their news output, the committee recommended.

Ways to help would be for the government to encourage the BBC to share facilities with them, and for any funds left over from the BBC's target help scheme for digital switchover to be used to support them.

However, the committee said it was sceptical about top slicing the licence fee.

The stick approach means a bigger role for Ofcom, which the committee wants to produce an annual report monitoring the quality and quantity of public service broadcasting news, and to take action for quality failures.

It also wants Ofcom to be given powers to check the resourcing of all the commercial public service broadcasting news providers as well as ITV's appointed news provider, which means Sky News.

Lord Fowler, chairman of the committee, said: "The news media is experiencing a period of unprecedented change. There is considerable uncertainty about the future. The newspaper industry is facing severe problems as readership levels fall; young people turn to other sources of news; and advertising moves to the internet.

"Even when newspapers run successful internet sites, the value of the advertising they sell on these sites does not make up for the value lost. In television news the same trends are evident and audiences for news programmes have reduced.

"The result is that there has been consolidation of ownership and pressure on costs. Companies are having to make savings and this is having a particular impact on investment in news gathering and investigative and specialist journalism - including a reduction in foreign correspondents.

"Against this background it is important that every effort is made to ensure high-quality news provision and a diversity of voices in the news. Media ownership controls remain in place to ensure that consolidation in the industry does not have an adverse impact on the public interest.

"But not everything can be achieved by media ownership controls. It is vital that the British system of public service broadcasting is protected and maintained."