Councils will face restrictions on the use of covert surveillance measures to stop them targeting "trivial" offences, Home Secretary Jacqui Smith said today.
Local officials have been condemned as "Bin Stasi" for using the powers to target people who put their bins out on the wrong day or let their dogs foul in the street.
Councillors or senior officials might in future be required to approve their use, under plans set out in a review of changes to the Regulation of Investigatory Powers (RIPA) Act.
RIPA powers have been criticised as an extension of the "surveillance state". Councils were found to be using them to investigate parents accused of lying about where they live to get their children in to better schools.
The Tories have called for the use of the powers to be restricted to offences that carry a prison sentence.
Ms Smith said it was right that they could be used for combating fly-tipping and rogue traders as well as serious crime and terror.
She said: "Our country has a proud tradition of individual freedom. This involves freedom from unjustified interference by the State.
"But it also includes freedom from interference by those who would do us harm.
"The Government is responsible for protecting both types of freedom. In order to do this, we must ensure that the police and other public authorities have the powers they need. But we must also ensure that those powers are not used inappropriately or excessively.
"The Government has absolutely no interest in spying on law-abiding people going about their everyday lives. I don't want to see these powers being used to target people for putting their bins out on the wrong day or for dog fouling offences.
"I also want to make sure that there is proper oversight of the use of these powers, which is why I am considering creating a role for elected councillors in overseeing the way in which local authorities use RIPA techniques."
Shadow home secretary Chris Grayling said the Government had allowed RIPA to become "a snooper's charter".
"It was supposed to be there to tackle terrorism and serious crime.
"Instead it's being used by both the Government and hundreds of local authorities to pry into all kinds of different parts of people's lives. It has to stop."
Liberal Democrat home affairs spokesman Chris Huhne said the consultation was "a tacit admission by the Government that its surveillance society has got out of hand".
"For too long, powers we were told would be used to fight terrorism and organised crime have been used to spy on people's kids, pets and bins.
"Surveillance powers should only be used to investigate serious crimes and must require a magistrate's warrant."
Councillor Hazel Harding, chairwoman of the Local Government Association's (LGA's) Safer Communities Board, said the powers were being used to respond to residents' complaints about fly-tippers, rogue traders and people defrauding the benefits system.
"Time and again, these are just the type of crimes that residents tell councils they want to see tackled. Without these powers, it wouldn't be possible to provide the level of reassurance and protection local people demand and deserve."
She said the LGA's advice to councils was that it was inappropriate to use the powers for less serious matters except in the most unusual and extreme circumstances.
Home Office Minister Vernon Coaker visited Nottinghamshire County Council yesterday to see how the legislation has been used to catch rogue traders.
Mr Coaker said the review was about "reassuring the public that these powers are used properly" and "trying to make sure the line is drawn in the right place".
"They are a powerful crime-fighting tool but there are also concerns about privacy and we need to get the balance right."
Local Government Minister John Healey, who was also in Nottingham yesterday, said he wrote to councils last year telling them the system needed to be tightened up to restore public confidence.
"This consultation is a chance for people to give us their views about how these powers are used.
"Councils do not have as many of these powers as the police but they do have a serious job to do in dealing with things like fly- tipping and criminal damage that cause people a lot of grief."