The law could be changed to protect agreements reached by councils and unions on behalf of workers amid claims a costly equal pay fight could derail such deals.
The Government has launched an urgent review after warnings that the ability of town halls and unions to reach collective agreements could be threatened by legal challenges against an equal pay deal negotiated in 1997.
Unions have been reluctant to agree collective settlements after a tribunal ruling in Middlesbrough found the GMB discriminated against a female member by accepting a low back-pay deal - although the result of an appeal is awaited.
Local Government Minister Phil Woolas said the issue was probably the single most important in his in-tray and did not rule out legislation where agreements were desirable.
But Mr Woolas said many councils had already addressed the issue and it was not clear if a legal solution was possible.
He spoke out after being challenged in the Commons by Sunderland South MP Chris Mullin, who said claims could land the North-East with a £300m bill.
The Labour MP claimed the problems had already cost Sunderland taxpayers £15m but could reach £50m in the worst-case scenario - with the national bill put at £2.7bn.
Mr Mullin called for a change in law to allow for a moratorium on claims for a transitional period and to cut the time during which compensation could be paid retrospectively.
In Newcastle, the cost of implementing the first stage of the equal pay agreement is put at £16m with just 100 cases outstanding.
Northumberland County Council is facing 1,000 claims but is "robustly" defending all cases because it does not believe it has any liability.
Kevin Rowan, regional secretary of the Northern TUC, said there was a good case for legislative change because the problem had evolved over such a long time.
But North-East solicitor Stefan Cross, who has won settlements for dinner ladies and other staff, said: "The UK Government cannot change European law. They don't have the right to make continued discrimination lawful."