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The House of Lords Gambling Committee says video game loot boxes should be regulated under gambling laws.
The Lords say loot boxes should be classified as "games of chance" - which would bring them under the Gambling Act 2005.
"If a product looks like gambling and feels like gambling, it should be regulated as gambling," their report says.
And they warn that such a change should not wait.
"The Government must act immediately to bring loot boxes within the remit of gambling legislation and regulation," said a statement accompanying the report.
Loot boxes have long been controversial in video games. They offer players a chance at a randomised reward when opened. To further complicate matters, boxes can often be bought for real money, and the rewards can sometimes be traded.
The Lords report is wide-ranging, covering the entire gambling industry, but focuses in part on new forms of gambling, and those targeted towards children.
"There is academic research which proves that there is a connection, though not necessarily a causal link, between loot box spending and problem gambling," it says.
One expert, Dr David Zendle, explained to the committee that either loot box spending causes problem gambling, due to their similarity - or that people who have gambling problems spend heavily on loot boxes. But he warned that either way, the connection was "extraordinarily robust".
The Lords report concludes that ministers should make new regulations which explicitly state that loot boxes are games of chance. It also says the same definition should apply to any other in-game item paid for with real money, such as FIFA player packs.
The Government told the committee that its planned future review of the Gambling Act would focus on loot boxes. But the Lords report warns: "This issue requires more urgent attention."
The Lords join a range of parents and childrens' groups, as well as a previous report from the digital committee on addictive technologies, in calling on ministers to regulate loot boxes as a form of gambling.
Some action has already been taken: in Belgium, loot boxes were banned in 2018 due to similar fears. Earlier this year, game-rating agency Pegi said clearer warning labels would be added.
And in the video game industry, some companies have taken the initiative and elected to change the way their systems work.
As part of its wider review of the sector, the Lords report also notes that young people are "most at risk" of becoming problem gamblers.
It says 55,000 problem gamblers are aged between 11-16. As a result, it says, all new online gambling games should be reviewed to see if they appeal to children - and their potential to cause harm should be assessed.
The report also highlights the problems with eSports betting as another potential gateway for young people.
Researchers told the committee: "eSports represents the largest growth opportunity for sports gambling and presents a particular worry, as its players and spectators are young."
