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The Commission, an independent but government-funded organisation which advises on legal reform, said the existing law could put pressure on ISPs to remove Web sites when they receive allegations that a site contains defamatory material.
"When a Web site carries material to which someone objects - rightly or wrongly - it is often easier to complain to the ISP than the author," said Professor Hugh Beale, of Warwick University's law faculty, who led the review.
"The problem is that the law puts ISPs under pressure to remove sites as soon as they are told that the material on them may be defamatory, without considering whether the information is in the public interest or true," he added.
The Law Commission also suggested a legal redefining of the term "publication" to limit the time during which archived material can be legally challenged.
Beale said the government could follow the example of the US and exempt ISPs from liability for libels carried on the Web sites they host. An alternative would be to extend the Defamation Act 1996 to widen the "innocent dissemination" defence.
The Law Commission investigation came a fortnight after a controversial ruling in that an Australian citizen could sue a US publisher for libel because a Web article was viewed there.
Australia's High Court ruled that mining magnate Joseph Gutnick could sue publisher Dow Jones under Australian law for an alleged libel. The ruling made no comment on the merits of the case, which will be heard next year.
Michael Clinch, partner at law firm Picton Howell, said the ruling highlighted the need for online publishers to be aware of the law.
"Just because the Internet is a new technology, it doesn't mean it needs new laws," said Pinch.
"If you are going to publish on the Internet, you must be responsible for your actions. You must be aware of the law in your local jurisdiction and, if you are publishing something about a foreign person, company or entity, you must consider the law in the jurisdiction of that subject."
US court rejects Web libel lawsuit >>