The BBC has been ordered to work more closely with publishers amid growing concerns about the threat it poses to the future of independent local news.

Industry regulator Ofcom will also be told to produce an annual report looking at the impact the corporation is having on local news in the UK.

The instructions are contained in the government’s mid-term review of the BBC’s Charter, its contract with the government which is underpinned by the licence fee, paid by every household in the UK.

The mid-term review also gives media regulator Ofcom greater powers to scrutinise the BBC’s online services, which have attracted strong criticism from publishers after the BBC began dismantling its local radio services so it could boost its local news online, directly competing with existing local news websites such as KentOnline.

Across the UK, the BBC has scrapped dedicated local programming on local radio stations after 2pm on weekdays and throughout most of the weekend, instead hiring more local journalists to write stories for the BBC News website, often writing articles already being produced by existing local publishers.

Publishers say the BBC’s licence fee model, which enables it to publish stories without adverts and using state-of-the-art technology gives it an unfair advantage which could ultimately drive some historic local news titles out of business.

An announcement from the Department for Culture, Media and Sport said the mid-term review “stresses the need for the BBC to clearly demonstrate how it will meet its obligations on distinctiveness” and for the BBC “to meaningfully engage with its competitors, such as radio stations and local newspapers, when considering changes to its services”.

The BBC’s complaints process will also be overhauled, to provide more independent scrutiny, amid concerns that the current complaints service doesn’t inspire confidence from those raising objections about the organisation.

In December, editors across the country, including Iliffe Media editorial director Ian Carter, took the unprecedented step of writing to readers to warn of the dangers of the BBC’s expansion into local news, branding the corporation neighbours from hell.

The BBC dismissed the concerns in a statement on its website, pointing to its funding of 165 Local Democracy Reporters through the Local News Partnership with publishers. Publishers, who employ the LDRs under contract from the BBC, say that the positive intent of the LDR scheme is wiped out by the existential risk the BBC’s wider local news plans pose for independent journalism organisations.

News Media Association chief executive Owen Meredith said: “The government’s recommendation that the BBC strengthen its transparency and engagement with commercial media providers is welcome and makes clear the BBC needs to change its current approach, particularly in the local news marketplace, to support rather than compete with commercial providers.

“By needlessly boosting its digital local news offering, at the expense of much-loved local radio services, the BBC threatens to crush commercial local news publishers who cannot be expected to compete with the might of the licence fee. Ultimately, this could result in the BBC becoming the only source of local news in many communities.

“MPs and Ofcom need to wake up to this threat and press the BBC to change course on these misguided plans.”

Culture Secretary Lucy Frazer said: “The government wants to see a strong, independent BBC that can thrive in the years to come as a major contributor to the nation’s successful creative industries.

“In a rapidly changing media landscape the BBC needs to adapt or risk losing the trust of the audiences it relies on.

“These changes will better set up the BBC to ask difficult questions of itself, and make sure Ofcom can continue to hold the broadcaster to account. We all rely on the BBC being the best it can be and this review will help ensure that is what the British public gets.”

Commenting on today’s mid-term review, Ian Carter said: “It is encouraging to see that the government recognises the BBC can do much more to work with local publishers.

“But action needs to be swift. The impact of its unnecessary expansion to compete directly with local news publishers is already being felt in an industry which has lots of other challenges.

“Every week, we see the positive impact independent local news organisations have on their community, there when nobody else is. It is vital the BBC acts to remove the risk it is creating.”