A Cheshire cemetery is being run by a group who "do not have the authority to bury people", a council leader said.
Middlewich Town Council said the board running the town's cemetery had "managed to separate" from the council, in breach of the law.
The authority said, if necessary, legal action would be taken to "recover the cemetery from the board members".
Board chairman Simon McGrory said the report was inaccurate but he wanted to resolve the situation "by agreement".
The board, comprised of three former town councillors and one resident, is responsible for managing the day-to-day running of the cemetery as well as its accounts and the employment of its staff.
A report by town council clerk Lisa Benskin said the cemetery had been run by a committee of the council, which had "managed to separate from the town council".
A statement released by the board in 2016 said that its members "wish to make it quite clear that it is a separately constituted and independent body from Middlewich Town Council".
Ms Benskin's report said that statement was based on "no actual documentary evidence".
"The current Middlewich cemetery board have repeatedly stated, and have convinced many, that they are an independent body", her report said.
She added that it was "not clear" how the separation occurred because "no such agreement or resolution" had been found which would make the arrangement legal.
She wrote that in the lack of written evidence "leads to the unavoidable conclusion that the current Middlewich Cemetery Board is operating ultra vires and without any authority".
Middlewich Town Council leader Mike Hunter said "if the board is not legally constituted then it does not have the authority to bury people".
"This will be of massive concern to Middlewich residents who have relatives recently buried".
"My thoughts are with those who have buried relatives in recent years, and whose grief will not have been eased by this needless wrangling", he added.
Three of the board's four members are former town councillors who lost their seats in elections in 2019. The positions are unpaid.
Ms Benskin began to investigate who controlled the cemetery after concerns were raised by newly elected councillors who, she said, had been told by the board's members that they would not be allowed to attend its meetings.
She said that under the council's control, many decisions over how the cemetery is run could only be taken by elected councillors.
The council called on the board to "return control" of the cemetery, including its funds and records, "as soon as possible".
It said that if the board "refuses", "legal advice and action will have to be taken to recover the cemetery from the current board members".
Mr McGrory said Ms Benskin's report "makes many assumptions and is not an accurate reflection of the operation of the cemetery, past or present".
"As we have always said, we will look to resolve the situation, not by a public confrontation but by common sense discussion and agreement", he added.