Communities Scretary Eric Pickles has demanded the Local Government Association (LGA) removes the tool, You Choose, which invites voters to identify how town halls should raise cash.
Electors are asked whether councils should fill gaps in their budget by pushing up the cost of parking and issuing more fines, the Daily Telegraph said.
Mr Pickles warned that the law was "very clear" that councils cannot use parking charges and fines as a form of taxation.
"I am very concerned that the Local Government Association is actively encouraging councils to break the law, as well as exposing councils to potential legal action," he said.
"This threatens to undermine public trust in local government.
"The LGA should remove this tool immediately. I believe such stealthy activity reinforces the need for a clampdown on dodgy parking practices by over-zealous council officers.
"This Government will stand up for hard-working families and local shops against town hall parking bullies."
In 2011/12, English councils had a total current account surplus of £565 million from their on-street and off-street parking operations.
This is a £54 million increase on the £511 million surplus in 2010/11, said the foundation.
An LGA spokesman told the Telegraph that councils were "fully aware" of the rules regarding parking revenue.
You Choose was designed to "allow the public to see in simple terms some of the difficult decisions council are having to make to balance local budgets", he said.