The Competitions and Markets Authority (CMA) has issued the warning after finding evidence of a marketing agency writing hundreds of false reviews about its clients.
The watchdog said that between 2014-15 Total SEO & Marketing Ltd had written over 800 fake reviews for 86 small business across 26 online review sites.
Total SEO has agreed to remove the reviews and stop posting endorsements on behalf of its clients, which include car dealers, mechanics and other tradespeople.
Following the investigation the CMA has produced written advice for businesses to deal over posting online reviews.
Companies should not commission third parties to write fake endorsements about them and online review sites should not give businesses the right to block reviews they don’t like, the CMA said.
Nisha Arora, CMA senior director, said: “With more than half of people in the UK using online reviews to help them choose what to buy, they are becoming an increasingly valuable source of information. Fake reviews can lead to people making the wrong decisions and fair-playing businesses losing out.
“Search engine optimisation companies, PR and marketing agencies provide a valuable service to businesses, but they must do this lawfully. Our enforcement action against Total SEO makes clear that posting fake reviews about clients is unacceptable.”
Fake online reviews have long been a scourge of the hospitality industry. Last year food critic Jay Rayner backed the #noreceiptnoreview campaign, which asked TripAdvisor to only allow users to post reviews if they could provide evidence of a receipt.
Today’s warning follows a Government enquiry in to reports of false online reviews last year.
The CMA said it will be publishing the outcome of its investigation in to ‘unlabelled endorsements’ in the next few weeks.