Foreign-based online casinos are allowed to advertise but must adhere to tight regulations, including a ban on offering free entry to online poker competitions and suggesting likely prize money.
However, according to the government, a number are adopting a liberal approach to the rules in particular in their advertising on public transport, taxis and print media.
It is understood that culture, media and sport secretary Tessa Jowell and newly created industry regulator the Gambling Commission will now write to foreign casino firms, as well as advertisers, ensuring laws are adhered to.
Recipients will be told the commission will urge the Crown Prosecution Service to prosecute those who continue to break the law.
The Financial Times reports Jowell as saying: "I am not willing to turn a blind eye to this and have agreed with the Gambling Commission that we should crack down on advertisers and publishers who knowingly break the law."
This latest move by the government follows a complaint from the Methodist Church last month surrounding a poster campaign for online betting firm Victor Chandler, which it was alleged linked gambling with drinking.
The creative showed comedian and broadcaster Roland Rivron using the site on a laptop in a bar, but the Advertising Standards Authority did not uphold the complaint.
The Gambling Commission was set up last month to oversee the Gambling Act 2005, which comes into force within the next two years.
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