Ms Bailey said the report showed a "crushing lack of understanding" of the pressures facing the newspaper industry and criticised ministers for a lack of urgency.

She said: "The thud made by the 80-page Interim Report on Digital Britain as it fell on our desks today was matched only by our hearts sinking as we took stock of its content.

"We are bitterly dispappointed that the report makes only passing reference to newspapers - the word is used just four times - and the crushing lack of understanding of the urgency required for changes to merger regulations in the local and regional media sector.

"We, of course, welcome the commitment to investigate the potential for changes to merger regulations in the local and regional media sector. But how long will the process take following the full report in May? One or two years?

"Frankly time is running out. Regional newspaper publishers are facing the most challenging times in their history, mergers and combinations of newspaper groups offer the only chance of survival for some titles."

Ms Bailey continued: "Merger regulations need to change to enable the regional newspaper industry to survive in the digital age, rather than conspiring to strangling it out of existence.

"In a democratic society newspapers and their journalists play a vital role in holding society's institutions to account.

"The Digital Britain debate needs to broaden to take this into account and focus as much on the value of maintaining high quality journalism as it does on the pure practicalities of how content is delivered, be it digitally or otherwise.

"We will be responding to the report urging Lord Carter to take these views into account."

By contrast, the Newspaper Society gave a cautious welcome to the report. The merger regime was among a range of issues that the society had wanted to see addressed.

In a statement, it said: "We will participate fully in the Digital Britain review to ensure that government actions create opportunities for regional and local newspaper companies to develop further as thriving regional and local media businesses."

The National Union of Journalists has said the government should not rush to relax the rules as it won't protect quality journalism.

General secretary Jeremy Dear said: "Whilst on the one hand the government talks about the importance of plurality in the media, on the other it is considering a relaxation of the very rules that protect it.

"Politicians must take care not to allow policy to be dictated by media owners who have shown scant interest in investing in the editorial resources needed for quality journalism.

"Last year regional press companies argued against BBC involvement in local video because they said it would stop them investing. Then, with the potential competition seen off, they pushed on with massive cost cutting programmes that are resulting in journalists' jobs being slashed and the quality of local media damaged.

"It's vital for the government to look for solutions to support local media that will enhance the quality of journalism available, rather than simply allowing existing owners to wreak their damage on a larger scale."