Facebook could be forced to disclose how political parties are targeting users online under new rules proposed by the UK's data protection watchdog.

In an evidence session for Parliament's fake news inquiry on Tuesday, Information Commissioner Elizabeth Denham called for a new code of conduct for social media companies to tackle political targeting and advertising practices online.

Should this code go ahead, social media companies will be required to inform users when their data is being used to target them by political parties through advertising.

Facebook currently allows advertisers to target users as "lookalike audience", or people that might be interested in a product or message, based on their personal information online.

"The use of lookalike audience should be made transparent to the individuals. They need to know a political party or an MP is making use of lookalike audiences. The lack of transparency is problematic," Ms Denham said.

Facebook implemented changes to its political advertising structure earlier this month to provide greater transparency to users, but the ICO said that's not enough.