The regulations are currently under consultation by the Department for Culture, Media and Sport (DCMS) and are set to be introduced ahead of the 2012 Games to prevent ambush marketing and unauthorised trading near Games venues, and to help protect sponsors' vast investment in the event.

Similar rulings were introduced in the 2010 FIFA World Cup in South Africa, where controversy was caused by a group of female Holland fans wearing identical orange miniskirts to a clash with Denmark, and who were subsequently detained in a FIFA office on suspicion of promoting an unlicensed brand of beer through their clothing.

At the tournament, criminal charges were introduced to cover ambush offences but the CIM have warned that the move could be catastrophic to the business practises of thousands in the English capital.

Roderick Wilkes, chief executive of the CIM, said: "Britain's businesses could miss their seat at 'the greatest show on earth' unless a rational balance is struck between sponsors and non-sponsor.

"The Games and their sponsors need to be protected but there is a grey area about the rights of all other organisations – and individuals – that are not sponsors.

"In the worst case, those trying to associate business activity to the London events could face a criminal charge; which we find wholly unacceptable."

The Institute's paper, Ambush Marketing and the Law, considers how companies can gain reflective economic benefit from the Games, which Visit Britain estimates will generate £1.5 billion revenues in tourism alone, without flouting the law.

Ahead of the final DCSM consultation, the Institute has advised marketers to develop creative and innovative ways around the strictures of the legislation.

They have also advised that non-specific associations with health, fitness and athleticism will not infringe on the Act but have stated that UK businesses must take on board advice from London 2012, which is freely available on the event's website.

Wilkes added: "The London 2012 Games are a wonderful opportunity for the nation, for businesses and individual consumers.

"But businesses could lose out if they are stifled by regulation.

"Beyond 2012, the Institute is concerned that a precedent will have been set which unduly prohibits businesses tapping into current national and societal events.

"We are calling for 'common sense' legislation which will see business campaigns around the Games taken 'in the spirit of the Olympics; not the letter of the law'."

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March 2011: Government launches trade restrictions consultation for London Olympics
June 2009: London 2012 publish plans to stop ambush marketing
September 2008: Paper launched on 2012 marketing restrictions