A hard-hitting report accused major firms of putting more effort into protecting their profits than keeping the public safe online.
Ministers should consider forcing firms to pay for the cost of policing on social media and introducing a system of sanctions with multimillion-pound fines, the Home Affairs Select Committee said.
The cross-party committee, which took evidence from Google, Facebook and Twitter, acknowledged that the technology giants had considered the impact that online hate, abuse and extremism can have on individuals and welcomed measures taken to tackle the problem.
But they said “nowhere near enough is being done”.
The committee said it had found “repeated examples of social media companies failing to remove illegal content when asked to do so”, including “dangerous” terrorist recruitment material, promotion of sexual abuse of children and incitement to racial hatred.
The report said: “The biggest companies have been repeatedly urged by governments, police forces, community leaders and the public to clean up their act, and to respond quickly and proactively to identify and remove illegal content.
“They have repeatedly failed to do so. That should not be accepted any longer. Social media is too important to everyone – to communities, individuals, the economy and public life – to continue with such a lax approach to dangerous content that can wreck lives.
“And the major social media companies are big enough, rich enough and clever enough to sort this problem out – as they have proved they can do in relation to advertising or copyright.
“It is shameful that they have failed to use the same ingenuity to protect public safety and abide by the law as they have to protect their own income.”
In their strongly-worded report, the MPs accused Google, which owns YouTube, of making money from hatred because adverts appear alongside “inappropriate and unacceptable content, some of which were created by terrorist organisations” – with the creators of the extreme content also getting a share of the revenue.
Although some advertisers had withdrawn their business from the site and Google may suffer financially as a result, “the most salient fact is that one of the world’s largest companies has profited from hatred and has allowed itself to be a platform from which extremists have generated revenue”.