The advisory group, chaired by Baroness Helena Kennedy QC, also recommends an overhaul of the Communications Act 2003 and the Serious Organised Crime and Police Act 2005, which limits demonstrations near Parliament.
The recommendations, published today, go much further than the Charity Commission's guidance on the subject issued last month, which maintained that charities can only engage in political activities if these remain "ancillary" and do not become the long-term "dominant" means of carrying out charitable purposes.
Kennedy said: "We want to remove the fear that charities have that if they do too much campaigning they will lose their charitable status.
"Many charities will find themselves involved in campaigning at some time or another, but what's inhibiting them it is that the Charity Commission has traditionally interpreted campaigning in a narrow way."
Rosie Chapman, executive director, policy and effectiveness, at the commission, welcomed the report. "There are limits to what is possible within existing charity law, but within that framework we will look closely to see if there is more work we can do to clarify our guidance on charities and campaigning," she said.
The 24-strong advisory group consisted of lawyers and campaigning groups and individuals. Kennedy said: "We want government to recognise campaigning as a vital part of our democracy and to not feel threatened by it, but to welcome it. It's about opening up a wider debate about how you keep a mature democracy young and healthy."
One of the main recommendations of the report is a change in the Communications Act to allow campaigning organisations to advertise on TV and radio.
The act has been challenged by Animal Defenders International, whose My Mate's a Primate ad was banned last year. The charity's appeal is due to be heard by the House of Lords.
See Newsmaker, page 11.