The use of firearms would be justified if the risk to public safety was sufficient, the police watchdog said.
Plastic bullets and water cannon could also be used by officers in future disturbances under proposed new “rules of engagement” for the police, Her Majesty’s Inspectorate of Constabulary (HMIC) said.
Sir Denis O’Connor, the Chief Inspector of Constabulary, said police need to be better prepared and ready to protect the public because the “game has changed”.
The review highlighted failing and “inadequate preparation” in the way the police handled the widespread riots in August and called for a major overhaul of tactics.
A poll for the review revealed half the public thought the police were too soft on the rioters and one in three said officers should have used firearms,
Four in ten feared the police were losing control.
The report, The Rules of Engagement, also revealed top level discussions are under way over how the military could help fill backroom tasks in future riots to free up more officers.
Sir Denis said: “Police have to be able to defend civil order but they need support from the public and others when they do that.
„If we don’t raise some of these awkward issues, then we’re not giving people the chance to prepare for a future where we’re slightly more assured as to what will happen.“
The report set out a series of circumstances where the new rules of engagement would establish „an agreed envelope of available tactics and associated use of force, that are likely to maintain public support“.
These rules could include making clear that armed police could use firearms with live ammunition during „arson attacks on commercial buildings with linkage to residential dwellings“.
Legal advice for the review said such force could be justified given the „immediacy of the risk and the gravity of the consequences“.
The review added that plastic bullets and water canon could be considered when barricades and missiles were used by protesters, during violent attacks on the public in the presence of police, and when other emergency services are threatened.
They could also be used when petrol bombs are thrown or during arson attacks.
All such incidents were experienced by officers in the summer.
A report by the Commons Home Affairs Select Committee this week said it would have been „inappropriate as well as dangerous to have employed water cannon and baton rounds“.
The HMIC report said that while current guidance already allowed the use of force, commanders were prevented from using some of the more forceful tactics due to a lack of training and resources.
It suggested the fall out over the way the police handled the G20 riots in 2009, when they was accused of being heavy handed, may also have had an impact.
In other concerns, some forces ran out of shields, not all forces have trained to use plastic bullets in public order situations, and protective equipment was not always available.
Police also need to outnumber rioters by between three and five to one if they are to effectively move forward, make arrests and disperse groups, the review said.
It found that police training, tactics, equipment and organisation was developed largely to deal with set-piece single- site confrontations, and were not prepared for the widespread, fast-moving and opportunistic criminal attacks seen in August.
The HMIC review also called for a „central information ‚all source‘ hub“, drawing together all information, including that from direct contact with the public and social networking sites, to be developed.
Sir Denis added: „Some new rules of engagement are necessary so the police can protect the public in confidence.
„People were burned out of their houses.
„We can all remember the woman leaping from the burning building in Croydon.“
He added that there had been a „long period of peace“ where civil order was not top of the agenda, but now it needed to be given priority again.
Sir Hugh Orde, president of the Association of Chief Police Officers (Acpo), said: „It is a strength of British policing that we are willing to ask hard questions when mistakes are made, and both HMIC’s report today, and that of the Home Affairs Committee yesterday, help us to identify the lessons.
„The challenge remains for operational police commanders to make critical decisions within volatile and fast-moving situations.”
But Jenny Jones, a member of the Metropolitan Police Authority, said: „Endorsing the use of live ammunition is an approval of the tactics of war on London’s streets and implementing such recommendations would be madness.“
Shami Chakrabarti, director of human rights campaign group Liberty, said: „The police have always been able to use violent force to save lives in extreme situations. No new power or strategy is required for that to remain the case.
„But how on earth would bullets have quelled and not inflamed this summer’s riots? Didn’t the widespread disorder all begin in Tottenham with a fatal police shooting?“