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Hostile states pose a "real risk" to Britain's security and without significant reforms there will soon be the "next great parliamentary scandal", a cross-party committee warned.
All-Party Parliamentary Groups (APPGs) can easily be used for "improper access and influence by hostile foreign actors", evidence to the Commons Standards Committee showed.
The large increase in the number of informal interest groups risks "inappropriate influence and access" as they are so difficult to monitor.
Commons Speaker Sir Lindsay Hoyle warned in private evidence to the committee of "very, very worrying" security implications without urgent changes being made to the way APPGs operate.
The report's warnings came after a woman who was "instrumental" in setting up the Chinese in Britain APPG was revealed by MI5 to be a spy for the Chinese government.
Labour MP Barry Gardiner, the former chair of the now-disbanded group, received more than £500,000 in donations from Christine Lee before the warning was issued in January.
The committee concluded: "We are concerned that if left unchecked, APPGs could represent the next great parliamentary scandal, with commercial entities effectively buying access to and influence of parliamentarians and decision-makers."
Commons authorities should "provide more significant support" to help MPs scrutinise benefits being offered by foreign governments, the committee said.
Funding should be more transparent, the MPs said, and the number of APPGs needs to be reduced from the current 744, the MPs added.
They also advised regulatory enforcement and limiting the number of the groups' secretariats to "reduce the risk of improper access".
Labour MP Chris Bryant, chair of the Standards Committee, said APPGs "must never be a backdoor means of peddling influence around the corridors of power or pursuing a commercial interest".
"Today's report represents a wake-up call for us all. The evidence we have gathered is chilling and points towards an urgent need for the House to take action," he said.
"Parliament always has, and always will, be a target for hostile foreign states.
"But with better regulation and transparency around these informal groups, we can ensure they continue to make a positive contribution to our democracy."
Sir Lindsay said he has held concerns for "several years" about the "security risks presented by some APPGs in terms of their indiscriminate engagement with state actors hostile to UK interests".
"I have also had fears about the proliferation of such groups, the influence of lobbyists over them, and the lack of transparency and regulation about their activities," he added.
"I'm told the proposals are currently being consulted on and it will ultimately be a matter for the House as a whole to make final decisions on how to better regulate."