The report, commissioned by the British Government last year when it held the EU presidency, insists that a raft of European legislation is needed to protect the industry and to ensure the independence of sports authorities.

The report is likely to be seen as a challenge to the growing power of leading clubs and raises fears of Brussels interfering in the running of the game. The FA Premier League has written to the Prime Minister stating its concern.

The plans also provoked anger among Labour MPs last night, with allies of Gordon Brown, the Chancellor, saying that he would veto the plans if he becomes Prime Minister. A Labour MP close to the Chancellor told The Times: “Gordon hasn’t spent the last nine years stopping Brussels taking control of our economy only to let them take control of our national game. He will block any moves along these lines.”

A senior government official also said last night that Tony Blair is unlikely to back plans to give Brussels regulatory powers over British football.

However, José Luis Arnaut, the Portuguese Sports Minister who wrote the 165-page report, insisted that poor regulation and over-commercialisation meant that “there is a real risk that ownership of football clubs will pass into the wrong hands, the true values of the sport will be eroded and the public will become increasingly disaffected with the ‘beautiful game’.”

The review proposes European legislation to ensure that owners are “fit and proper”, to control betting and matchfixing, to regulate agents, to tackle trafficking of young players, to prevent intensive training harming the education of child players and to combat racism and xenophobia.

It also wants to give football authorities more independence from the rulings of EU courts, a central clearing house for all transfers between clubs and a new European Sports Agency to oversee the sector.

The report will be presented to EU leaders to decide what action to take by the end of the year. Richard Caborn, the Minister for Sport, said that all the recommendations must be considered. “The report takes the right direction of travel, but there is a lot of work to do over the next six or seven months,” he said, adding that it did not transfer control of the sport to Brussels. “The report needs to be seen in the round,” he said.

He also pointed out that even the G14 group of clubs had accepted that there should be “cost controls”.

The report reserves some of its strongest criticism for players’ salaries, which it said had plunged the industry into a prolonged financial crisis. “This crisis is directly related to the massive wage inflation the sport has seen in recent years fuelled by the ever higher financial demands made by players at the encouragement of their ubiquitous agents,” the report says.

It concluded that it was “essential that some form of regulatory control be introduced” and proposed to cap salaries as a share of club turnover. The salary cap would be upheld by a new pan-European tax on clubs to redistribute wealth from those that exceed the salary cap to poorer clubs.

Gordon Taylor, the chief executive of the Professional Footballers’ Association, said: “No one calls film stars’ wages obscene or Robbie Williams’s wages or the directors of big companies that get big payouts. It’s supply and demand — they don’t hold a gun to their owner’s head. Football is a very precarious career that lasts a short time.”