However, the Foreign Affairs Select Committee said that the action was justified on moral grounds.
The MPs concluded that Nato has no powers under its treaty to conduct a war on humanitarian grounds without the consent of the United Nations.
The cross-party group called for the Nato treaty to be rewritten and a new code for humanitarian interventions.
During the campaign Russia repeatedly threatened to use its veto in the security council to prevent the UN backing military action.
However, the committee said that more should have been done in advance to warn Serb leader Slobodan Milosevic that Nato would wage a bombing campaign if his troops attempted ethnic cleansing in Kosovo.
Embassy bombing
The committee also examined the question of whether the bombing of the Chinese Embassy in Belgrade was a genuine mistake, as Nato said.
Outdated intelligence was blamed for the bombing, which seen as one of the biggest errors of the campaign and soured diplomatic relations with China.
MPs took evidence which suggested that the bombing was a deliberate move aimed at knocking out a telecommunications post, following alleged suspicions that the Chinese were passing intelligence to the Serbs about the bombing campaign.
'War crime'
The MPs' report folllows a statement from Amnesty International in the US published on Tuesday which said that Nato unlawfully killed innocent civilians in Kosovo.
It said Nato violated the "rules of war" and in particular condemned the attack on Serb state television in which 16 people were killed.
It amounted to a "grave breach of the laws of war" and Nato "therefore committed a war crime", Amnesty said.
This was denied by Nato spokesman Mark Laity, who said that the organisation had already been cleared of war crimes accusations.