Drawing together evidence from almost two years of public hearings, the commons media select committee today recommended that the PCC be given new powers to fine newspapers that breached its code of conduct and, in more serious cases, suspend the publication of offending titles for one issue.
John Whittingdale, chairman of the committee, said the PCC needed to take a more active role in upholding standards as it was seen as "lacking credibility and authority".
Publishing a report of findings from its investigation, called Press Standards, Privacy and Libel, the committee called for the PCC to appoint a deputy director to enforce standards and to be renamed the Press Complaints and Standards Board to reflect any enhanced powers it should adopt.
Last year, Guardian editor Alan Rusbridger called for reform of the body which oversees self-regulation of the press in the UK, saying the "weak" regulator needed to establish some form of investigatory mechanism.
In January, the Media Standards Trust published the results of a survey which suggested the public was in favour of a regulator that monitored compliance and conducted investigations.
Today's report said a revamp of the regulatory body was necessary as the PCC had "failed the test of self-regulation" by not seeking to limit widespread and careless reporting that followed the disappearance of three-year-old Madeleine McCann in Praia da Luz, Portugal in May, 2007.
"In any other industry suffering such a collective breakdown - as for example in the banking sector now - any regulator worth its salt would have instigated an enquiry. The press, indeed, would have been clamouring for it to do so," today's report said. "It is an indictment on the PCC's record that it singularly failed to do so."
MPs said it was obvious by May 2007 that a number of newspapers were ignoring the PCC's regulations yet the regulator remained silent as coverage became "a matter for public concern".
The PCC failed to take forceful action and only spoke out after Express Newspapers paid a £550,000 libel settlement to the girl's parents almost a year after the initial reporting in question happened, MPs said.
"By then, as we have seen, hundreds of false and damaging articles about the McCanns and others had been published across a large number of titles," the report concluded.
"This was an important test of the industry's ability to regulate itself, and it failed that test."
The committee also criticised the PCC's recent report into further allegations of phone hacking at the News of the World, calling its conclusion that there was no new evidence of hacking "simplistic".
The PCC acted in good faith in 2007 when it investigated the phone hacking at the News of the World that led to the jailing of royal reporter Clive Goodman and private investigator Glenn Mulcaire, MPs said.
However, when the PCC reopened its investigation in November it did not "fully or forensically consider all the evidence", the committee claimed.
The report praised the "good work" of the PCC from May 2008 following a spate of suicides which blighted Bridgend but said it could have acted "sooner and more proactively".
The committee said the PCC offered suitable guidance on the reporting of suicides but it urged the press watchdog to do more to monitor the conduct of journalists and the standard of coverage in such cases.
In addition, the committee called for the Editors' Code which the PCC enforces to be amended to offer greater protections around possible breaches of privacy, to make editors more responsible for comments left on websites and for headlines to more accurately reflect story content.
The PCC is currently engaged in review of its own. Baroness Buscombe, who replaced Sir Christopher Meyer as chairman in March last year, announced a wholesale review of the way the organisation is run in August.
Oliver Luft writes for Press Gazette