The Conservatives have accused Labour of double standards, saying that it would be wrong to leave any bids made by agencies to be resolved by the Competition Commission while bringing in detailed restrictions that will, for example, prevent Rupert Murdoch owning an ITV franchise.
The dispute emerged during a Commons debate on the Communications Bill.
Andrew Lansley, a senior Tory MP, tabled an amendment to strike out a clause that would scrap the existing ban. He said the Government's position was "absurd", because there would be "an obvious conflict of interest" if agencies obtained a broadcasting licence.
He asked: "If the Bill retains provisions that prohibit ownership and debar a specific person or category of person from owning a broadcasting licence when obvious competition problems arise, why do advertising agencies not require such a prohibition?"
But Kim Howells, the minister responsible for broadcasting, said the ban was no longer necessary because the Competition Act 1998 would allow the Commission to judge the impact of agencies holding licences. "Competition authorities will consider whether an agency is behaving anti-competitively," he said.
The minister admitted there would be problems if there was a "vertical integration" of those who create advertising, sell it and buy it.
Despite the protests, the plan to lift the ban is expected to be approved when the MPs finish discussing the Bill.