All private investigators in England and Wales should be licensed or at least registered, a committee of MPs has recommended.
The Commons home affairs committee made its call for a two-tier system in the wake of the phone-hacking scandal.
MPs heard 2,032 private investigators are registered as data controllers but industry groups claim up to 10,000 people work as private eyes.
The Home Office said it was waiting on the outcome of the Leveson Inquiry.
Committee chairman Keith Vaz said: "There are many examples of private investigators dealing in people's personal information.
"It's therefore important in our view that we should make sure that all private investigators are registered so that there is robust regulation. If they break the law, they've got to be fined more than £100."
In its report, the committee said it believed legislation should not wait for the outcome of Leveson, which was set up to examine media ethics and practices after the phone-hacking scandal emerged last year. It is also looking at relationships between newspapers and the police.
The MPs found that about 65% of private investigators were former police officers.
Their report said: "The phone-hacking scandal cast a new light on the sometimes murky world of private investigators.
"Individuals such as Glenn Mulcaire and Steve Whittamore might conform to a certain stereotype of the private investigator, but investigation in its broader sense is a multi-million pound industry which performs many socially valuable functions."
The MPs suggested full licensing should apply to individuals operating as full-time investigators and to private investigation companies. It said employees of law firms or insurance companies who conduct occasional investigative work should also be registered.
Both should be governed by a new code of conduct for private investigators, they said.
Those with criminal records would be immediately disqualified from operating as private investigators.
The MPs' report added: "The rogue element of the industry not only causes significant harm in its own right, it drags down the reputation of the industry as a whole, damaging by association the reputations of many decent, honest, law-abiding and highly skilled investigators."
It said private eyes tended to work in four distinct areas - traditional domestic and personal investigations; support work for solicitors and insurance firms; due diligence checks for businesses; and miscellaneous "problem-solving".
The committee recommended the term private investigator should be a protected title along the lines of social worker, to stop "cowboys" using it to describe themselves.
Several witnesses told the committee they believed private investigators would step into the breach as police cuts began to take effect.
The report also found:
- Currently anyone can undertake private investigations regardless of skills, experience or criminal records
- Rogue investigators are involved in "blagging" bank account details, telephone numbers and itemised bills, medical history and tax and payroll details
- Fees charged by investigators vary from £250 to several thousands of pounds
- Sophisticated equipment can be bought online for less than £100 to carry out illegal surveillance and phone tapping
A Scottish government spokeswoman said: "Effective regulation and licensing of the private investigation profession could make a substantial contribution in reducing the level of criminality in the industry and in raising standards to ensure that members of the public are afforded a greater level of protection."
Three trade bodies representing private investigators told the Leveson Inquiry in February they wanted a statutory-backed licensing system but added they wanted to remain self-regulated.
Tony Imossi, president of the Association of British Investigators, said licensing should have happened before.
But he added: "Licensing won't stop it. They need to make it a criminal offence to engage someone as a private investigator who is is not licensed.
"Doormen, clampers and cash-in-transit guards were seen as more politically urgent to get licensed. Had the phone-hacking scandal come to the surface in 2001 I'm sure investigators would have jumped to the top of the list."
Private investigator Roger Bescoby said regulation would help colleagues navigate difficult laws within the "very complicated" Data Protection Act.
A Home Office spokesman said: "We will carefully consider the committee's report. Given the relevance of this issue to the matters being considered by the Leveson Inquiry, we will await its findings to ensure they can be taken into account in the development of a suitably effective regulatory regime.
"Private investigators remain subject to the law on intercepting communications like everyone else."