Consumer Focus, the new super-watchdog created by the Government last month, said that web advertisements are not tightly regulated the way TV and print ads are.
Ed Mayo, the chief executive of Consumer Focus, even wrote to the trade body Advertising Association asking it to consider reclassifying all children's websites as adverts.
According to the rules, a confectionery or junk food company cannot advertise its products during a children's television programme or on a children's website, but the rules only apply to the adverts themselves, not the content of the websites.
This allows many companies to set up "fan zones" or gaming pages, which heavily promote their products and brands, that some industry insiders call as "advergames".
Some toy companies even have pages on their websites that say: "This is what I want for my birthday!" and they allow children to email their parents or grandparents with a wish list of toys that they want.
"The idea that marketing should be free from rules simply because it takes place on the Internet is well past its sell-by date," the Telegraph quoted Mayo as saying in his letter.
"This measure is needed and needed urgently because it would be a positive and proportionate way of discouraging some of the poor practice which can be found all too easily on websites targeted at children," he added.
Lord Smith, the chairman of the Advertising Standards Authority, has expressed his frustration that his body cannot crack down on many of the "advertorial" websites on the Internet.
"The number of complaints we receive about advertising on the Internet continues to grow strongly," he said.
"Some of these - where banner or pop-up ads, e-mails or virals are concerned - are within our remit, but the overwhelming proportion of complaints are ones we currently cannot address, because they relate to advertising claims on companies' own websites, and as such fall outside our remit," he added.
The Advertising Association last year set up the Digital Media Group, an industry policy committee, which is examining how advertising and promotional material on the Internet should be regulated.
It would not comment on the letter sent by Consumer Focus, saying it was close to sending its own recommendations to the Code of Advertising Practice, the body that is in charge of drawing up the advertising rules.
"It is not in the Advertising Association's gift to declare websites as advertising," it said.