The Madeleine McCann case was cited an example of falling standards
Press intrusion and inaccurate reporting are getting worse because the recession has forced newspapers to make cutbacks, a report suggests.
The report from the Media Standards Trust says some papers are sacrificing standards to maintain sales.
A YouGov survey found only 7% of 2,024 people questioned trust UK national newspapers to behave responsibly.
It says the system of self-regulation overseen by the Press Complaints Commission needs urgent reform.
The report was conducted by senior editors and lawyers for the Media Standards Trust, which aims to foster high standards in the news media.
These included the former Lord Chief Justice Lord Woolf and editor in chief of the Independent, Simon Kelner.
The publication comes as the Culture, Media and Sport Select Committee starts an inquiry into press standards and as Baroness Buscombe prepares to takes over from Sir Christopher Meyer as chair of the Press Complaints Commission.
The report says the public's already low trust in national newspapers is getting worse as newsrooms cut costs, putting journalists under greater pressure and increasing inaccuracy.
As an example, it cited "inaccurate and in some cases defamatory reporting" of the case of missing British girl Madeleine McCann.
Questions over how to regulate content that is increasingly being produced in multimedia environments had not yet been addressed by the PCC, it added.
Of those interviewed by YouGov, 75% said newspapers frequently published stories they knew to be inaccurate, while 70% said there were too many invasions of privacy by newspapers.
The 7% level of people who trusted newspapers to behave responsibly was lower than that for banks.
A further 60% called for greater government intervention to protect privacy, while 73% said they would like the government to do more to correct inaccuracies in the media.
Sir David Bell, chairman of the Media Standards Trust said the current system of press self-regulation was "fundamentally flawed" and in urgent need of reform.
"The system needs to be brought into the 21st century or it runs the risk of greater government intervention and a further accumulation of legal privacy protection," he said.
"This is not in the interests of the public or the press and has the potential to constrain press freedom."
Lack of confidence in self-regulation is encouraging some people to go to the courts, creating a precedent-based privacy law, the report says.
This threatens to marginalise self-regulation and has the potential to constrain press freedom, it says.
Martin Moore, director of the MST added: "Without urgent reform we believe that self-regulation of the press will become increasingly ineffective at protecting the public or promoting good journalism and, without prompt action, there is real danger that it will become increasingly irrelevant."
A Press Complaints Commission spokesman said it helped hundreds of people every year, and could point to high customer satisfaction.