Social networking firms including Facebook and Twitter are being told to make it clearer to members how they collect and use their data.
A report by the Commons Science and Technology Select Committee says the firms' terms and conditions are far too long and complex.
The MPs say users may not be aware of how their details can be used by websites and apps.
Any reasonable person would struggle with long privacy policies, they add.
The committee says reading such documents has been likened to "engaging with Shakespeare".
And it says that the rules have been designed for use in US courtrooms and to protect organisations in the event of legal action rather than to convey information.
The Chairman of the Committee, Andrew Miller MP, pointed to an experiment where Facebook had manipulated users' emotions by varying the stories they saw in their newsfeeds.
He said this "highlighted serious concerns about the extent to which ticking the 'terms and conditions' box can be said to constitute informed consent when it comes to the varied ways data is now being used by many websites and apps".
T&Cs updates
The report calls on the government to set standards which organisations can sign up to, promising to explain how they use personal data in clear, concise and simple terms.
Facebook recently unveiled updated terms and conditions policies that it claims are simpler and easier to read. It says it has "listened to people who have asked us to better explain how we get and use information".
Meanwhile Twitter has clarified its use of data in a blogpost, which explains that it collects data on the apps which users have on their phones in order to "deliver tailored content that you might be interested in".
This includes promoted tweets from advertisers. Twitter goes on to explain how users can turn off this form of data collection.
Relationship of trust
The Science Committee's report also says there is a problem with apps which request information which they do not obviously need, so as to provide their service.
It says companies should have a greater responsibility to explain why they need to collect information.
Facebook was criticised for carrying out experiments on its members despite having data privacy rules
The government does not escape criticism in the report.
The Committee cites the NHS Care data programme, which was delayed after concerns about patient privacy.
This is described as an example of where the relationship of trust between data collector and customer failed to develop.
The report says the government must learn lessons and assess the impact on privacy of policies that collect, retain or process personal data.
