Taxpayers should no longer help MSPs pay for second homes they buy in the capital, an independent review said.
The probe into Holyrood allowances said the practice where some MSPs can claim interest on the mortgages should end.
The review, headed by Dundee University principal Sir Alan Langlands, made 68 recommendations on changes to the current allowances scheme.
MSPs, the report stated, should also have to declare their employment of close family members on a register.
And they should not be allowed to lease accommodation from close relatives, concluded the probe, which was set up last summer.
Scottish Parliament presiding officer Alex Fergusson said greater public confidence in a new scheme was essential.
The controversial £11,400-a-year Edinburgh accommodation allowance for MSPs in outlying constituencies also pays for costs including factoring charges and council tax.
Critics said the payment of mortgage interest helped MSPs buy homes in the booming Edinburgh property market with the help of the taxpayer and sell them on at a personal profit.
However, some members who qualify have argued they needed a more permanent base while away from home during the parliamentary week.
Sir Alan's report said criticism of the existing system had been "widespread and persistent", adding: "In the circumstances, we believe that the status quo is not an option in any new scheme, especially if the new scheme is to command the confidence of the public."
The interest payments, the review suggested, should be phased out and scrapped at the end of the current parliament, in 2011.
Alternatives, such as Holyrood bosses clawing back profits on the sale of a property, or buying homes and leasing them out to MSPs have been rejected on practical grounds.
Sir Alan told a press conference at the Scottish Parliament the decision to recommend the abolition of mortgage interest payments was "pretty finely balanced".
But he concluded: "We take the view that a scheme which assists members to purchase a property which could result in a substantial profit and personal gain at the point of sale fails the test of selflessness."
Meanwhile, the review recommended the overnight expenses rate in relation to UK parliamentary duties be set at £128 and £150 for London.
MSPs' car mileage rates, it added, should be cut from 49.3p a mile to 40p, while recommendations to put MSPs' staff onto new pay scales could cost an extra £1.25m a year.
The review concluded there should be a maximum of £62,000 for staff for constituency MSPs and £45,000 for list MSPs, reflecting what it described as different casework loads for the two types.