Commission chief executive Steve Bundred said: "Communication is important to inform the public of the services councils provide and the functions they perform. The Audit Commission encourages the provision of information to improve accountability to taxpayers for spending.

"The money being spent by councils is not unreasonable, though they should always consider whether it provides good value."

But David Newell, director of the Newspaper Society, today repeated his call for curbs on council publications.

"The commission's research has confirmed that 90pc of councils publish a periodical and that 47pc of them - some 150 publications in England alone - contain private sector advertising," he said.

"It is quite wrong that local authorities should compete directly with independent regional and local newspapers for advertising revenue in this way.

"The commission's recommendation, that councils review the value of their spending on communication with the public and their editorial policies to ensure these are politically neutral and publicly defensible, must be implemented."

Sly Bailey, Trinity Mirror chief executive added: "The Audit Commission's involvement has been a complete waste of time as we knew it would be. It was obvious they were the wrong body to assess competition in the local media market or the impact of local activities on commercial entities.

"The government should stop trying to pass the buck to bodies that cannot tackle the core issues and must take direct action and intervene immediately before it is too late for some local newspapers."

The government has now asked media industry watchdog Ofcom to look into the impact of council newspapers on the local media.

Mr Bundred was originally asked to examine this issue as part of his inquiry but refused, saying it was beyond the Audit Commission's remit.