Lib Dem MP Paul Burstow said councils should not spend public money on publishing "pseudo-newspapers" that could pose a threat to independent local media.
During a Westminster Hall debate on 13 January 2010, Mr Burstow said that, while local authorities should be able to communicate with residents, some council freesheets were "little more than propaganda masquerading as newspapers".
The Sutton and Cheam MP said the publications were threatening local newspapers' advertising revenue.
"There is a sinister trend emerging in some local government quarters which is really about competing with local independent newspapers - even to the extent of putting them out of business," he said.
Culture, Media and Sport Minister Sion Simon said there was no clear evidence to demonstrate the impact of council newspapers on independent local media.