Ministers must use the opportunity to Brexit to free councils by slashing bureaucracy and red tape, the Local Government Association has said.
EU rules on how goods and services are bought have a "huge bearing" on local economies and can "stifle" efforts to transform areas, according to the LGA.
It has called on the Government to introduce a simpler system after Britain quits the bloc, insisting reforms could speed up contracting and cut administration bills.
Councillor Kevin Bentley, chairman of the LGA's Brexit task and finish group, said: "The UK's exit from the EU will have a significant impact on local government, creating challenges that need to be addressed but also opportunities to do things differently.
"The way councils spend money has a huge bearing on local growth and job creation.
"But EU rules over how they buy goods and services can stifle those efforts and take up time and money."
Councils have to follow EU-wide advertising and contract rules when they buy goods and services, which can take between three and 18 months, around twice as long as typical private sector procurement, according to the LGA.
It said the process "sometimes sits uneasily" with efforts to support local economies and pointed out that almost no public contracts end up being awarded to companies in other EU member states.
Just one in five English councils receive expressions of interest from companies based in other EU countries and across the bloc only 1.6% of public contracts are awarded to firms in other member states.
A "lighter touch" system should be introduced after Brexit that also gives councils the freedom to use local suppliers, specify a minimum local living wage for contracts and demand training for employees, the LGA said.
Cllr Bentley added: "Regulation of public procurement will clearly continue to be necessary when we leave the EU to allow councils to continue to demonstrate best value for money and ensure effective and fair competition.
"But introducing more local flexibility and easier procurement rules after Brexit would provide more community benefits and more growth opportunities for small and medium-sized enterprises.
"It would also allow councils to promote local suppliers and local labour and ensure workers earn a decent wage."