A joint committee of MPs and peers has hit out at the government's proposals to relax media ownership laws.

The committee, chaired by Labour peer and broadcaster Lord Puttnam, has rejected plans to ease media laws which would effectively pave the way for Rupert Murdoch to buy Channel 5.

In a report published on Wednesday, the committee warned that Murdoch should not be allowed to make a move into terrestrial television until Ofcom, the new media regulator, has had time to probe the wider issue of media ownership.

It says that Ofcom should prove itself to be an effective "trust-buster" before the UK market can be opened up to further foreign investment.

Despite the criticism, Downing Street has warned that it "remains committed to the principles of the bill" as it stands.

Culture secretary, Tessa Jowell, also gave a strong indication that the government will ignore the committee's findings. "We will look long and hard at the committee's recommendations. We will consider how the committee's work could improve the bill further." she said.

"But we are still committed to the key principles of the draft bill, which represents considered government policy.

"And we still firmly believe that our proposals on foreign ownership will give the best of both worlds - high levels of new investment, high standards - for the industry and the public."

Whilst the government has stopped short of relaxing the rules on cross-media ownership in relation to ITV, it is set to give the green light to the sale of Channel 5 should Murdoch make a bid.

"In advance of the first review by Ofcom of media ownership, in around 2005/06, we consider that the case for lifting the prohibition of Channel 5 and a major national newspaper group has yet to be made," said the report.

But David Elstein, the former boss of Channel 5, suggests it is unlikely that the News Corporation chief will make a play for Channel 5 in any case.

"Given that Murdoch has had two or three opportunities to buy into Channel 5 and declined them all, why would he suddenly want to pay a fancy price to get hold of it," he said in an interview with this website.

"The working assumption that just because something is possible it is also inevitable is fine in the leader columns of the Guardian, but in more sensible discourse I don't think it adds up to very much."

In its report, the committee also warned that US companies should be barred from acquiring UK media interests until it can be proved that they understand the concept of public service broadcasting.

Puttnam said that five tests, which include ensuring that foreign companies invest more in UK production, should be observed before the law is relaxed.

But critics of the report warn that barring American investment could prove "counter productive".

In an ePolitix.com interview, Elstein criticised those who suggest banning US investment on the grounds that British firms cannot enter the American media market.

"Reciprocity is a feeble argument which is basically protectionism by another name. Either foreign ownership if good for UK media or it isn't. If it's good why should we be worried if the US reciprocates - if it's bad why should we want the US to reciprocate. So reciprocity is utterly irrelevant to the argument," he said.

"The argument for allowing foreign ownership of UK media is that foreign investment may be good for us."

The parliamentary committee expressed fears that the British media could be flooded with US imports unless the government keeps barriers in place - a claim rejected by Elstein.

"It would be a pretty daft thing for them to buy ITV and then destroy it by putting out unpopular programmes," he said. "What has sustained ITV over many generations is its reputation for putting out a good quality, mostly domestic product."

If accepted, the committee's recommendation would stop firms such as Disney, AOL Time Warner and News Corporation gaining a foothold in the UK's radio and TV industry.

But the report has been undermined by indications that ministers are to press ahead regardless.

Speaking earlier this week, a spokesman for the Department of Culture, Media and Sport said: "The government still believes that British industry and the public will benefit enormously from the foreign investment that would flow from these recommendations."

Peers have warned, however, that ministers must make concessions in order to ensure the legislation is passed by the House of Lords.

Whilst the government can expect to force its proposals through the House of Commons, peers are warning that they will defeat the bill in the Lords unless the government thinks again.

Liberal Democrat peer Lord McNally, who is a member of the committee, warned ministers that they risked undermining the whole process of pre-legislative scrutiny if they rejected the findings.

He also rejected claims that the committee's conclusions were based on prejudice against Murdoch. "I did not see in all our deliberations any vendetta against Sky or an obsession with Mr Murdoch," he told a press conference.