The MPs suggest the PCC should be renamed to reflect its regulatory role
The Press Complaints Commission (PCC) should have the power to stop a newspaper from going to print if it is in serious breach of its code, MPs say.
They also recommend the PCC should be able to impose financial penalties on publications found breaking the rules.
The Culture, Media and Sport Committee makes the recommendations in a report on press standards, privacy and libel.
The highest sanction the PCC can give currently is a critical adjudication that the publication has to print.
Chairman of the Commons committee, John Whittingdale, said although the press should still be self-regulated, the PCC was widely viewed as "lacking credibility and authority".
"To counter this, we believe that it must be seen to take a far more active role in ensuring that standards are upheld," he said.
The report also recommends the PCC be renamed the Press Complaints and Standards Commission to reflect its role as a regulator and not just as a complaints handling service.
It adds that a deputy director for standards should be appointed.
Torin Douglas, Media correspondent
This is really three reports in one.
One is about strengthening the PCC after what the MPs call the "failure" of self-regulation. They say the system didn't help the parents of Madeleine McCann over "hundreds of false and damaging articles" about the death of their daughter.
The second report suggests ways of reducing the "chilling effect" of the libel laws on investigative journalism. It criticises the "super-injunction" and "libel tourism", under which overseas litigants choose to sue in London in the hope of larger payouts.
The third - and most outspoken - report is about the News of the World and how far its journalists indulged in illegal phone-hacking. The MPs reject the paper's claim that this was the work of a single "rogue" journalist, accepting evidence from the Guardian that the practice was more widespread. But News International have accused the MPs of exaggeration and claim some of them tried to "hijack" the report for party political purposes.
The committee's report also seeks to address media concerns that the operation of libel laws is stifling press freedom, and considers the balance between personal privacy and press freedom.
The report notes that although there has been a growing number of cases brought against newspapers on privacy grounds, the committee does not believe a case for specific legislation or general privacy law has been made.
Mr Whittingdale said: "It is essential that newspapers should be able to report and comment on events, public figures and institutions, to be critical of them and to be a platform for dissenting views.
"At the same time, the press must be seen to uphold certain standards, to be mindful of the rights of those who are written about and, as far as possible, be accurate in what they report."
The committee also said the publishers of the News of the World suffered "collective amnesia" over the extent of illegal phone-tapping by its reporters.
It interviewed News International bosses after the Guardian claimed the practice was widespread at the Sunday tabloid.
The report said: "It is likely that the number of victims of illegal phone hacking will never be known, not least because of the silence of Clive Goodman and Glenn Mulcaire and the 'collective amnesia' at the newspaper group.
"The report notes however, that it is certainly more than a 'handful', cited by both the newspaper and the police."
News International rejected the claims and said the committee had exaggerated.