Local authorities and bus companies will be working together under the new system to promote the best bus deal for communities - both for fares and routes.
But bus companies could find themselves contravening competition law - and risking legal challenges and fines if they do this.
Tony Page, chair of the LGA's Bus Task Group, said: 'Efficient, integrated transport is key to a competitive economy, both locally and nationally.
'We are calling on the government not to tie local government's or industry's hands on this issue - and give us as much flexibility in achieving integrated transport as possible.'
1) The Competition Act (1998) means that bus companies could fall foul of its provisions if they seek to agree prices and routes, which is a fundamental aspect of the integrated transport systems proposed in the legislation.
2) The LGA is supported in this campaign by Transport 2000, the Confederation of Passenger Transport, the Transport and General Workers Union, ASLEF and the Commission for the Protection for Rural England.