It also warned party groups not to make 'exaggerated' predictions on how government spending limits would force them to withdraw services required by law.
A statement from the NEC - Start to Build: Stop the Rot - says Labour groups considering breaching capping limits next year should inform their local MP and the national party.
It calls on councils to campaign against cuts - which research for the party suggests will lead to 37,000 job losses this financial year - and draw up alternative budgets before ministers announce grants and capping limits in December.
The NEC says before any council breaches the limits next April, when budgets are set, it should appraise 'the likelihood of being capped to a lower level, and the administrative, political and practical problems which could result'.
Conservatives should be challenged to defend spending cuts which 'may lead to a possible breach of the council's statutory obligations', the statement says.
'It is, however, important that predictions are realistic and not over exaggerated'.
A motion to require the Labour Party to back the application of transfer of undertakings regulations to all transfers of council services was due to be considered by the conference this week.
The motion, proposed by the white collar section of the GMB union, seeks party backing for the inclusion of the European public services directive in government guidance on public procurement.
The directive governs how many companies can tender and the criteria against which they can be judged.
Another motion calls for the party to 'move ... local government as a provider of local services much higher up the political agenda'.