Analysis of 11 creams supplied by herbalists in south London showed eight of them contained a potent steroid called dexamethasone, which is illegal in Britain without a doctor's prescription.
The creams had such large amounts of steroid they could have damaged delicate skin. Creams for children, whose skin is most vulnerable, contained five times more steroid than the adult creams. Patients, most of whom already had eczema, were charged up to pounds 35 a week.
Dr Fiona Keane and colleagues from King's College Hospital, London, who report their findings in the British Medical Journal, say no warnings were given to patients about the risks of the creams on thin skin.
Dr Keane said: "These patients were going to herbal practitioners because they didn't want to use the steroid creams given to them by their GPs and dermatologists. But they weren't told the herbal remedies contained steroids.
"The ointments were unlabelled jars with no instructions, and they contained doses of steroids higher than in the creams they could have had from their GPs. One could say it is a fraud."
Eczema is a chronic disease that comes and goes, and is commoner in childhood. Many patients try alternative remedies because the natural relapses and remissions make them feel orthodox treatments are not working.
The danger of steroids, when used in excessive quantities, is that they thin the skin of the face, making blood vessels appear more prominent and unsightly. The effect is permanent and irreversible. In other areas of the body, steroids can cause stretch marks and leave skin more susceptible to infections and bruising.
Dr Keane said a register of Chinese herbal practitioners was being set up and the Medicines Control Agency was investigating "non-bona fide" practitioners who supply prescription drugs illegally.
"We examined only a small number of creams obtained in south London and not all herbal practitioners are involved," she said. "Dermatologists have worked with bona fide Chinese herbal practitioners before."
Five years ago, the Great Ormond Street Hospital for Children, London, tested a herbal tea made by a Chinese practitioner as a remedy for eczema and found it worked. That treatment is now used in a standardised dose for children.
More than 100 cases of poisoning or serious side-effects linked to Chinese and other traditional medicines have been recorded by the National Poisons Unit at Guy's Hospital, London.