A report by the all-party Parliamentary betting and gaming group says the growth of betting exchanges - where it is possible to back horses, individuals or teams to lose - makes sport more vulnerable to fraud and match-fixing.

The group makes 15 recommendations including that the Government heed a call from Lord Condon, the former top policeman who now heads the International Cricket Council's anti-corruption unit, to raise the maximum jail sentence for gambling cheats above the current two years.

The inquiry took evidence from all the major sports including horse racing, football, cricket, boxing, both rugby codes and tennis.

The inquiry, headed by Lord Faulkner of Worcester, says: "While we accept that the greater part of sports betting is neither corrupt nor unfair to punters, the evidence convinces us that the growth of betting exchanges - because of the facility they provide to bet against a result - has increased the potential for corruption.

"We recommend that the Government take note of the views expressed to us by Lord Condon and the ICC on the question of legal penalties for cheating and amend the gambling bill accordingly."

In his evidence to the inquiry, Lord Condon, a former Metropolitan Police Commissioner, told MPs that the proposed maximum penalty of two years in prison for cheating was "derisory".

Lord Condon said: "You could get a bigger sentence for failing to pay your hotel bill criminally than you could for corruption in major sports.

"Symbolically, a higher penalty, perhaps as the Bill passes through the two Houses, might be appropriate."

The inquiry came about after Chris Bell, the chief executive of Ladbrokes, claimed that "at least one race a day was being corrupted by the availability of laying horses to lose on betting exchanges".

A bookmaker claimed he knew of 20-30 cases of horses not being raced properly after being backed to lose on betting exchanges.

Among the evidence cited were the examples of Ed Giddins, the former England and Surrey cricketer, who backed his county to lose, two St Helens rugby league players - Sean Long and Martin Gleeson - who did the same thing, and heavy and irregular betting patterns surrounding an inconsequential Uefa Cup match between Panionios of Greece and Dinamo Tblisi.

The MPs and peers also heard of some of the outlandish wagers being offered for spread betting in cricket, including the number of catches in a Test series by fielders wearing sun-glasses and the number of times the bails are dislodged - both open to manipulation by the players.

The inquiry has been taking place at the same time as a City of London police investigation into alleged corruption in horse-racing.

Other recommendations from the inquiry call for sport's governing bodies to have a say in the type of bets offered to punters and to make bookmakers set up "audit trails" - something the new betting exchanges already do - to allow suspicious betting patterns to be traced.

Governing bodies should also devise common standards on who may bet on their own sports, the report concludes.