Senior police have told inquiry into psychoactive synthetic drugs that making them illegal would not reduce their use

The least harmful new "legal highs" should be made readily available for sale under strictly regulated conditions rather than being immediately banned as happens now, according to a cross-party group of peers.

Senior police officers told the inquiry into the new psychoactive synthetic drugs, which are appearing in Britain at the rate of more than one a week, that the existing criminal sanctions for drug users is doing nothing to reduce their use.

Chief constable Tim Hollis, who chairs the Association of Chief Police Officers drugs committee, said the 1971 Misuse of Drugs Act was not well positioned to deal with the more complex drugs scene which now exists in Britain.

"The solution to the particular challenges of legal highs does not lie in adding inexorably to the list of illicit substances," said Hollis. The police say the speed at which new substances are being produced and made available and marketed means existing laws are being overtaken. They said that party invitations circulating on smart phones now include a weblink to a supplier of legal highs.

The report published on Monday by the House of Lords all-party parliamentary group on drug policy reform, chaired by the crossbench peer, Baroness Meacher, says it would be far more effective to adopt a New Zealand initiative and ask trading standards officers to test and regulate the supply of low-risk legal highs.

"Under these controls suppliers would, as is planned in New Zealand, be limited to certain outlets and required to label their product with a clear description of its contents, its risks and the maximum advisable dose. The supplier would also be responsible for assuring that their product causes only limited harms," says their report adding that the system would encourage young people to avoid the unknown and therefore more dangerous alternatives. Sales to minors and advertising would be banned.

The inquiry group which includes Conservatives Lord Mancroft and Lord Norton, and crossbenchers, Baroness Stern and Lord Cobbold, say the current system of 12-month temporary banning orders to control each new legal high while the government's drug experts establish how dangerous they are does little to protect users.

The first legal highs to be banned in Britain were mephedrone, known as "miaow miaow" and methoxetamine, known as "mexxy", which largely imitate the effects of amphetamines and ketamine. They usually come in the form of 1kg packets of white powder produced most often in China and India and sold through online head shops.

The peers said they welcomed the fact that the temporary banning orders do not make it a criminal offence to possess and use the substances during that period, saying it is the first time since 1971 that any government has banned the supply of a drug while not criminalising its possession and use.

At present the ban is likely to be made permanent after 12 months and possession made illegal.

"The greatest risk to young people from new psychoactive substances derives from the absence of reliable information about the contents and strength of each substance and its effects both short and long term," says the report.

"The name of the substance may tell a user little about its contents, and the contents may change from week to week. The more substances are banned the more are created and the greater uncertainties for consumers."

They say this is the greatest risk posed by legal highs. The report cites the examples of "Ivory Wave" which contained three different substances over an 18-month period and "Bubble" which is widely used in the north-west and whose content varies from week to week but many people assume it is a single drug.

One leading toxicologist, Dr John Ramsey, said the temporary banning orders were making the situation worse as they were driving the development of yet more compounds.

"As long as large amounts of money can be made selling untreated chemicals, for which there is a market of largely young people willing to risk using them as drugs, and a chemical industry willing to supply the chemicals, the situation is unlikely to improve."

Baroness Meacher said the rapid emergence of legal highs demonstrated the need to reform UK drug policy: "The Misuse of Drugs Act is counter-productive in attempting to reduce drug addiction and other drug harms to young people."

• This article was amended on Monday 14 January 2013. It originally said mephedrone and methoxetamine largely imitate the effects of cannabis, which was inaccurate.