Social media firms may be forced to pay for the cost of policing digital crimes and should be fined if they do not quickly censor illegal posts, under plans published by a parliamentary committee on Monday.
The home affairs select committee, says that the behaviour of Facebook, Twitter and Google has been "completely irresponsible and indefensible" and that they should now be presented with the bill for investigating crimes committed over their networks.
It is "shockingly easy" to find terrorist material online and companies should face multi-million pound fines and sanctions unless they begin taking robust action.
Similar "policing" charges are levied on football clubs and late-night drinking establishments which are blamed for fuelling certain types of crime.
Amber Rudd, the Home Secretary, welcomed the report and said its recommendations were being studied "carefully" while police chiefs also said that action was now necessary.
Half of all crimes reported to police now involve some element of social media involvement, with terrorist offences, hate crimes and threats of violence all being committed online.
Ministers have had to introduce specific offences to cover crimes committed over social media such as grooming and stalking - and there are growing fears over violent incidents now being live-streamed on Facebook and other sites.
Internet firms have faced repeated accusations that they are failing to address concerns over the material being published on their platforms.
Ms Rudd said that social media firms had to prove that they were serious about tackling criminal activity online.
She said: "We have made it very clear that we will not tolerate the internet being used as a place for terrorists to promote their vile views, or use social media platforms to weaponise the most vulnerable people in our communities.
"We will continue to push the internet companies to make sure they deliver on their commitments to further develop technical tools to identify and remove terrorist propaganda and to help smaller companies to build their capabilities. I will expect to see early and effective action."
A spokesman for the National Police Chiefs Council said: "Hate and extremist material online is a serious problem with potentially very dangerous consequences. This is an interesting idea.
Social media companies' failure to deal with illegal and dangerous material online is a disgraceYvette Cooper, home affairs committee
"The detail would need to be considered but we are supportive of looking at a range of ways to speed up removing this content wherever it is being shared."
The home affairs committee, headed by Yvette Cooper, the former Labour Cabinet minister, calls on Theresa May to punish social media companies that fail to remove criminal content after its investigation found they were "shamefully far" from tackling terrorist and criminal postings properly.
Ms Cooper said: "Social media companies' failure to deal with illegal and dangerous material online is a disgrace.
"They have been asked repeatedly to come up with better systems to remove illegal material such as terrorist recruitment or online child abuse."
The committee adds it is "completely irresponsible and indefensible" that online companies do not take down banned material as soon as it is posted and warned that sanctions and multi-million pound fines should be introduced to force them to take it seriously.
Earlier this month Twitter was heavily criticised for refusing to share crucial anti-terrorism information with the Government.
The MPs say it was "shockingly easy" to find hate speech and terrorist propaganda online, particularly on YouTube.
In one example: "Twitter refused to remove a cartoon that we reported depicting a group of male, ethnic minority migrants tying up and abusing a semi-naked white woman, while stabbing her baby to death. It refused to take action on the grounds that it was not in breach of [Twitter's] hateful conduct policy."
The NSPCC welcomed the report and called on politicians to protect children online by doing more to tackle the problem of illegal material.
The report states: "Social media companies rely on their users to report extremist and hateful content for review by moderators. They are, in effect, outsourcing the vast bulk of their safeguarding responsibilities at zero expense.
"In the UK, the Metropolitan Police's Counter Terrorism Internet Referral Unit monitors social media companies for terrorist material. That means that multi-billion pound companies like Google, Facebook and Twitter are expecting the taxpayer to bear the costs of keeping their platforms and brand reputations clean of extremism."
People who use multiple social media accounts only meet friends once a fortnight, a survey has found.
By contrast, those with one social media account, such as Facebook or Twitter, rarely goes over three days without seeing a friend, a survey for the app LooseEnds found.