The BBC's "scale and scope" should not be squeezed as part of the renewal of its charter, the House of Lords Communications Committee has warned.
Peers said they had heard "no compelling evidence" that it should further restrict its output - though they backed calls for it to face a tougher regulatory regime.
Showbiz stars have warned the public service broadcaster risks being "diminished" under political pressure - with ministers due to publish a White Paper on its future before the summer.
The committee criticised as "inappropriate" a controversial licence fee deal which saw the BBC accept responsibility for the cost of providing free licences for the over-75s, which critics portrayed as a backdoor welfare cut.
It endorsed the idea of replacing the BBC Trust with a beefed-up independent regulator, potentially part of Ofcom, which would be able to recommend a licence fee to the Culture Secretary, who would retain the final decision.
And it said more needed to be done to ensure output reflected the whole population - suggesting young people, ethnic minorities and those with disabilities felt particularly unrepresented.
But it rejected suggestions that the broadcaster should pull back from making programmes to rival those of commercial channels or otherwise reduce its output and warned against any reduction in spending on news and current affairs.
Chairman Lord Best, said: "The BBC is, indeed, a national treasure. It is the envy of countries all over the world.
"We received no compelling evidence for a reduction in the BBC's scale and scope.
"Rather, the Committee sees merit in the universality of the BBC, underlining its special role of reflecting and bringing together the nations, regions and diverse communities of the UK."
"However, while we are not advocating radical change to the BBC, we do see benefit in its independent regulator, whoever that may be, holding the BBC to account through a clearer, simplified framework."
The report said the BBC "remains, in global terms, a comparatively small player" and "should not be restricted to providing content which the commercial market does not provide".
Welcoming increased spending on children's programmes "at a time when other providers have significantly cut back", it concluded: "Although we recognise the case for additional resources for content made for children in the UK, we see no merit in redistributing funds from the BBC to the rest of the industry to provide this."
While the BBC's original stated purpose "to inform, educate and entertain" remained as valid today, the committee suggested a further mission "to reflect" should be added.
"We expect the BBC to make a particular commitment to reflecting the different opinions, lifestyles, beliefs and values of the nations, regions and diverse communities of the UK," it said.
"We heard from a number of witnesses who felt that the BBC did not reflect their lives, particularly the panel of young people, those with a disability and those within the BAME community.
"We note that the BBC has recognised this and we expect to see a marked improvement here."
The committee also put its weight behind calls for the duration of the next charter to be stretched to 11 years to try to reduce political pressure by ensuring the process did not coincide with general election cycles.
A BBC spokesman said: "The Lords' report is an important, thorough and considered contribution to the debate about the future of the BBC.
"We welcome the growing political consensus on the need for a longer charter to take debates about the BBC out of the election cycle.
"The report also makes clear that there is no need for contestable funding or further top slicing of the BBC's funding for other purposes.
"We also note that the committee believes that the BBC should be deregulated - we endorse this, as it will put creativity first and will always enable the BBC to make its own decisions about programming, rather than those decisions potentially being prescribed from Whitehall.
"In particular, we welcome the recognition that the BBC is a small player globally and their backing for the broad remit of the BBC with no need for reductions in the BBC's scale or scope."
A BBC Trust spokesman said: "We welcome the committee's support for a clear and transparent process to set the licence fee, including proper public consultation and a role for an independent regulator in recommending the right level to the Government."