Waltham Forest Council has been given a fortnight to explain why it ignored legislation to reduce the fortnightly publication of Waltham Forest News to quarterly.
Ongar MP and Secretary of State for Communities and Local Government, Eric Pickles, has written to the council and four others in London to formally notify them of the laws governing the Local Audit and Accountability Bill, introduced on March 30.
Last week, the council told the Guardian, it will continue publishing the controversial freesheet fortnightly, described by councillors and members of the public as 'labour party propaganda' until formally told otherwise by the government.
A spokeswoman said: "We have not received any formal communication from the government under the new legislation. We will consider our position when we do so."
Mr Pickles has now taken 'formal' action over what he describes as Vladimir Putin style 'Town Hall Pravda' and an alleged attempt to drive local newspapers "out of business" by writing directly to the council's chief executive Martin Esom.
The letter states: 'The Secretary of State hereby gives the local authority known as the London Borough of Waltham Forest notice of a direction that he proposes to give to the authority undersection 4A of the 1986 Act.
'The Secretary of State proposes to direct the London Borough of Waltham Forest to comply by no later than 1 May 2014 with all of the provisions of the Recommended Code of Practice on Local Authority Publicity issued under section 4 of the Local Government Act 1986 on 31 March 2011 having been approved by a resolution of each House of Parliament.'
It also mentioned the council has 14 days to make written representations about the direction.
As a strong defender of the local press, Mr Pickles has said he is prepared to take further action against the council for its publication described as 'not even-handed'.
He said: "It is scandalous that bloggers have been handcuffed for tweeting from council meetings, while propaganda on the rates drives the free press out of business. Only Putin would be proud of a record like that.
"Localism needs robust and independent scrutiny by the press and public, and municipal state-produced newspapers suppress that.
"‘Town Hall Pravdas’ not only waste taxpayers’ money unnecessarily, they undermine free speech.
"I have given written notice to councils most clearly breaching the Publicity Code, noting that Parliament has passed new laws to tackle this abuse.
"We are prepared to take further action against any council that undermines local democracy - whatever the political colour," said Mr Pickles.
He also added if councillors want to campaign and put out political literature, they should do it at their own cost.
Formal letters have been sent to the councils responsible for Greenwich Time, Hackney Today, the Newham Mag, and (Tower Hamlets) East End Life.
Waltham Forest Council has been contacted for a statement.