The government had asked the watchdog to investigate local authority spending on council news publications following concern that they were adding to the decline of local newspapers.

Publishers have pushed for the publications to be outlawed, or at least better monitored, claiming they were masquerading as legitimate titles and impacting on local newspaper sales and advertising.

However, Audit Commission chief executive Steve Bundred said few councils that published their own newspapers were in a position to attract local advertising.

In a letter to Stephen Timms, Digital Britain minister, Bundred added: "The money being spent by councils is not unreasonable, though they should always consider whether it provides good value."

The newspaper industry has also accused the titles of being essentially propaganda vehicles, but this claim was also rebuffed by Bundred.

It was claimed earlier this month that the government would hand the commission's findings over to the Office of Fair Trading as evidence of anti-competitive behaviour.