The Culture, Media and Sport Committee is concerned about the rising number of council newspapers and the impact they have on local democracy.
The parliamentary committee will today also call for the Government to relax local merger rules.
The changes to the merger rules have previously been recommended by Ofcom and will be welcomed by local publishers.
Newspaper publishers – such as Trinity Mirror, Johnston Press and Guardian Media Group (GMG) – have lobbied intensely for a change to the existing merger rules.
In relation to council-run newspapers, MPs acknowledge it is important for local authorities to communicate with their citizens, but they believe it is unacceptable for councils to set up publications in direct competition to local newspapers.
MPs are recommending making it mandatory for publications to clearly state whether they are published by a local authority on their front page.
They also believe it is unacceptable that local newspapers are prevented by competition laws from taking collective action against news aggregation websites such as Google News.
Last month Trinity Mirror's Fulham & Hammersmith Chronicle launched an ad campaign warning readers that Hammersmith and Fulham council's h&f news was, in the words of editor Adrian Seal, "masquerading as an independent newspaper".
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