About 30 ACCC staff examined the 300 most popular free apps among Australian children.
Hundreds of "free" smartphone games targeted at children fail to warn parents about potentially costly in-game purchases, and many parents are still unaware how to disable them, the competition watchdog has warned.
The Australian Competition and Consumer Commission (ACCC) was now considering legal action for misleading and deceptive conduct following a sweep of the 340 most popular apps.
Parents have reported thousands of dollars being charged to their credit cards after children approved in-game purchases, often without realising it cost real money.
The ACCC found many of the apps currently available for free through the Apple and Android app stores did not reveal players would have to buy upgrades or virtual rewards. Up to 75 per cent of free games on one of the platforms did not reveal that in-game purchases could be made.
While the ACCC declined to name games, consumers groups pointed out The Simpsons: Tapped Out, Tap Paradise Cove, The Hobbit: Kingdoms of Middle-earth, and Smurf Village as deceptively costly games.
Deputy chair Delia Rickard said the ACCC was working with Google and Apple, which own the two biggest app stores, to "systematically fix this issue".
"It is through their sites that people access these games, they have responsibilities," Ms Rickard said.
Apple's store allows users to set a password for every purchase or to disable in-app purchases entirely. Android's store also allows users to set a password, but this allows purchases for 30 minutes.
The ACCC was part of an international team of regulators pressuring global companies to adopt principles designed to protect children and parents. But the ACCC also had "quite a few" investigations afoot, Ms Rickard told Fairfax Media.
"At the moment we are looking at whether or not we want to take enforcement action," she explained.
Chief executive of the Australian Communications Consumer Action Network, Teresa Corbin, called on the app industry to "clean up their game".
"It's not good enough to extensively use the word 'free' in the product description and reasonably expect consumers to see a small disclaimer at the bottom regarding in-app purchases," Ms Corbin said.
ACCAN has previously reported The Simpsons: Tapped Out, Tap Paradise Cove, The Hobbit: Kingdoms of Middle-earth to the ACCC for misleading and deceptive conduct. Two apps now have disclaimers about in-app purchases, but point-of-sale information for The Hobbit has not changed.
ACCAN found situations in The Simpsons game where players wait 90 days for a crop of corn to grow, or spend nearly $50 on virtual 1060 doughnuts to complete the task instantly.
A spokeswoman for consumer advocacy group Choice said it gave the Smurf Village app a Shonky award in 2011 after receiving numerous complaints.
"When little fingers get tapping, smartphone charges can be astronomical. If in-app purchasing is cause for concern, disable in-app purchases on your phone, or download parental control apps," the spokeswoman said.
"Choice supports the ACCC's push for greater controls around in-app purchasing. It's crazy to think kids can unwittingly rack up big bills on their parents credit cards with supposedly 'free' gaming apps."