The UK government needs to develop a more coherent strategy on space, or risk falling behind other countries, a House of Commons committee has warned.
But MPs did not support calls for the creation of a UK Space Agency.
Many scientists say a space agency would give Britain more influence in determining international space policy.
The committee also said there should be no policy block on the UK fielding astronauts, or on developing its own rockets for launching satellites.
Observers say that despite having many leading space scientists and some of the best industry expertise, the UK remains a bit-part player on the international stage.
Britain's lack of influence means that it misses out on lucrative contracts to build science instruments and spacecraft, they argue.
Many scientists believe this is because individual space programmes are overseen by several different government departments, resulting in a lack of coherency when it comes to overall space policy.
The report by the House of Commons Science & Technology Committee agrees that there are many problems with the current situation.
The British National Space Centre (BNSC) was set up to oversee the UK's space activities.
But the report said the BNSC lacked leadership and co-ordination. It said that a low profile and poor resources contributed to the current problems.
Evidence to the committee suggested the worldwide perception of the BNSC was of an organisation with "no budget and therefore no power, whose consultative nature renders it ineffectual in the promotion of UK space interests".
Trading on past?
Phil Willis MP, the committee's chairman commented: "There is no doubt that UK space is a big success story, but there is no doubt either that we are living on past investments."
He added: "In order to stay in the game and ahead of the game we now have to take some very hard decisions, both in research terms and in commercial terms. First of all, we need focus.
"If the European Space Agency [Esa] is to be our main vehicle, then we need a far tougher approach to negotiations with them, and that is where the BNSC can play such an important role."
The report stopped short of endorsing the call, from the UK's Royal Society among others, for a full UK space agency with overall authority for British space activities.
It opted instead to recommend strengthening the BNSC's role, a decision which will disappoint many in the space community.
However, the committee said such an agency would not be able to shoulder the accompanying responsibilities based on current levels of funding.
In 2005-6, the UK spent £207.61m on space, far less than the sums invested by France, Italy and Germany during the same period.
George Fraser, director of the University of Leicester's Space Research Centre, called the Science & Technology Committee's report a comprehensive and detailed work.
But he added: "They have set themselves a difficulty in that they've assumed that there won't be any large-scale increase in funding so the status quo will be perpetuated.
"The select committee might have been more minded to agree with us had there been a budget there to make radical change, and I guess they anticipate there won't be, so BNSC has got to be encouraged and adapted."
The committee also criticised the UK's traditional rejection of involvement in manned spaceflight and launcher systems.
Although a member state of Esa, the UK gives no funds to the space agency's astronaut corps.
The report recommended that the UK leave the option of such missions open, to be considered like other proposals and judged according to the best science.
But, ultimately, the £150m annual cost of joining astronaut programmes could prove prohibitive.
Giving evidence to the committee, Dr David Tsiklauri from the University of Salford argued that the absence of space vehicle launching capability had reduced the UK's competitiveness in the global market.
Andrew Weston from the University of Warwick told the committee the UK could reap significant economic and technological benefits from developing its own launch capability.
The Ministry of Defence (MOD) has said it is exploring a dialogue with industry and others on developing a low-cost launcher for small satellites.
The prospect raises the possibility of a British version of the X-Prize - the US competition to develop the first private space vehicle.
Funds working harder
"We heard plenty of evidence to say there was a sufficient supply of launchers, either from the US, or Russia, or Europe through Ariane," Mr Willis told BBC News.
"But we then heard other evidence that getting the right launcher at the right time was not quite as easy as had been suggested.
"It may well be that in the future, we need that technology either in a military sense or in a civil sense, which is why we have recommended that there ought to be a closer link between the MOD and civilian space in order to develop launcher technology if that is what we want to do."
Industry believes one of the best ways limited government funding can be made to work harder is by backing Esa's technology "seedcorn" fund known as Artes (Advanced Research in Telecommunications Systems).
The programme puts money into basic research and product development. Industry says it provides a 7:1 return, and has called for the UK contribution to be significantly increased to £30m (approximately 44m euros).
David Williams runs Avanti Screenmedia PLC which will soon launch the Hylas satellite to deliver broadband internet services to rural Europe. He said Britain and Europe needed to work smarter.
"The Chinese and the Indians are overtaking us in space; they are spending billions and we can't compete with that," he told BBC News.
"What we can do is maintain a cutting edge by always being at the very zenith of new technology. What I did with Hylas was take some government R&D money and marry it with City money and deploy it in real time. If the government picks winners and gets technology into space quickly, we can maintain a competitive advantage."
The Commons committee supports this view and has called on government to review its Artes contributions.
The BNSC is currently drafting a new UK space strategy, which is due for publication later in the year.