Over-zealous local authorities and a lack of clarity in the Licensing Act have been blamed for forcing the cancellation of small scale live music events under the regime.
In a damning report by the Live Music Forum published today the change in licensing procedures and councils' "unnecessary restrictions" come under fire.
The Forum recommends that small venues, including pubs, should not need a licence to stage acoustic music under the current legislation.
It also urges the government to define "incidental music" to exempt small venues (less than 100 capacity) from needing a live music licence and "performances that aren't the main attraction at an event".
Feargal Sharkey, chairman of the Live Music Forum, said: "Of course public events do need to be properly controlled, but we believe that a pub putting on an acoustic folk trio, for example, should not need a licence.
"That small acoustic gig does not impact on crime, disorder or public safety so should not fall under the remit of the licensing laws."
Ged O'Sullivan, licensee at Ryan's Bar, in Stoke Newington, North London, who met with Sharkey earlier this year to put forward his concerns about the changes, said: "This is a step in the right direction.
"It's nice to know that Feargal has listened to us. I just hope that the government follows these recommendations."
The Licensing Act abolished the "two-in-a-bar rule", where a public entertainment licence was not required for two or less performers.
But live music campaigners have claimed that the regime has had a negative impact on live music, as licensees have been deterred from the cost and administrative burden of applying for a music licence.
Government figures released last year showed that 63 per cent of smaller venues were hosting live music under the new regime.
Overall, the Forum survey's found the Licensing Act has had a neutral effect on the UK's live music scene.