People caught having sex in public should only be arrested as a last resort, according to draft guidelines.
Police should instead turn a blind eye to consenting adults in parks and public toilets, a senior officer said.
Deputy Chief Constable Michael Cunningham, of Lancashire Police, said in a report that previous responses had alienated the gay community.
Shadow home secretary Dominic Grieve described the report's findings as "unacceptable".
The report - Guidance on Policing Public Sex Environments - was leaked to Police Review magazine.
Mr Cunningham is the Association of Chief Police Officers (Acpo) spokesman on lesbian, gay, bisexual and transgender issues.
He said officers should avoid a "knee jerk" reaction to incidents of dogging, in which previously unknown partners meet in public for sex, as well as cruising and cottaging, in which gay men meet in parks and toilets.
Mr Cunningham said: "In any event it is not for the police to take the role of moral arbiter.
"The police role is to ensure that any complaints are dealt with fairly and professionally and that where individuals are engaged in lawful activity they may do so safely."
The guidance proposed in his report will now go forward to a committee of senior police officers.
No guidance will be issued until a decision has been made but, if approved, it could be put in place across England and Wales.
Mr Cunningham said it was not illegal to visit known sites where people met for sex, although people's behaviour could be criminal.
Measures such as closing an area, lighting, CCTV, or regular uniformed patrols should be considered by officers before arrests, he said.
Plain-clothes officers should be avoided because they could be seen as an "agent provocateur", Mr Cunningham said.
Mr Cunningham said the impact on people's lives could be extreme, and could lead to humiliation and the breakdown of relationships.
"Acts of suicide and self-harm by persons who may have been arrested, charged or come into contact with the police in such a situation have happened in various parts of the country," he added.
Commenting on the report, shadow home secretary Mr Grieve said: "This is unacceptable. The law is the law and there should be no exceptions."
An Acpo spokeswoman said: "This document has been put forward as a developing proposal. It is not complete and has not been adopted as Acpo guidance."