Each year an estimated 3,500 parents cheat the system in order to secure a place for their child in the school of their choice.
Only a third of 'school cheats' are ever caught by councils and the heftiest punishment they face is to lose the placement.
Radical plans suggested by the chief schools adjudicator could see tough new sanctions introduced to discourage the 'theft' of school places.
The most common tactic parents employ is to use the address of a relative living in the catchment area of their chosen school. Some even go so far as to rent a flat in the area during the application process or lie about a marriage separation in order to secure the desired place.
Three-quarters of councils have reported rapid rises in fraudulent applications in the last three years, and nearly half have said they want tougher powers to punish those caught lying.
Ian Craig, the chief adjudicator, said: "The majority of parents are honest. If the dishonest few deprive the honest majority of their rightful places, that is a form of theft."
This latest government inquiry follows Harrow council's attempts to prosecute Mrinal Patel for fraud after she applied for a place at Pinner Park First School for her son using her mother's address which falls within the catchment area.
The case was dropped after the council was advised that it would be necessary to prove Ms Patel would have gained financially from the alleged fraud.
The issue is even more acute in the current economic climate where families who may have previously sent their children to fee-paying schools are now competing for places in the best state schools.
Although the inquiry recommends fines and court orders for cheating parents, the government is reluctant to criminalise parents who, it could be argued, are just trying to do the best for their children.
Many see the debate as a distraction and say that if the poorest schools were improved there would be less competition for the few select places.
Margaret Morrissey, of Parents Outloud, said: "Lying is wrong, but I do understand why parents do it. The government has promised to improve schools to take away this problem, and it has not delivered."
Would you report a parent you knew was cheating? Or are they just trying to do the best for their kids?