The council's Gypsy Travellers Working Group (GTWG) has submitted a paper to the Convention of Scottish Local Authorities and the Association of Chief Police Officers in Scotland, calling for a change to the law in Scotland to manage unauthorised encampments.
A report to the council's housing and communities committee on Tuesday recognised that "current legal provisions largely restrict local authorities and police forces" when it came to balancing the rights of travellers and those of local communities.
The council itself has spent between £10,000-£11,000 in legal fees in seeking interdicts and eviction orders for illegal traveller encampments on council land.
The working group's paper highlighted "problematic events" in dealing with large encampments last summer, saying in many cases there was "non-co-operation" with the council and "severe disruption caused to local businesses".
One such group pitched up in Donibristle Industrial Estate in Dalgety Bay, leading to residents complaining about vandalism, harassment, trash and human waste.
The report also underlined that the council's hands were tied when it came to removing travellers off private land and it is hoped that a change in law will stop a repeat of such problems.
Currently, Scotland has greater legal restrictions regarding the removal of illegal encampments from private land than England and Wales, where local authorities can seek court action under specific grounds which do not apply in Scotland.
John Mills, senior manager of housing management and homelessness, said, "The GTGW has endorsed the need to call for the Scottish Government to agree to a review of the current legal framework and to potentially bring the Scottish provisions into line with the rest of the United Kingdom."
Fife is also reviewing its co-operation policy for managing such encampments, to deal more effectively with the matter through joint efforts with the police.
Mr Mills added, "The main focus for criticism of the policy is its lack of effectiveness in dealing with large encampments (more than 20 caravans) which sporadically come into Fife for economic, religious and family reasons.
"The hugely negative impact of a particular group ... during 2010 has highlighted the need to review the policy and recommend to all agencies how to more effectively deal with large encampments."
In addition, the council has identified four potential stopover sites for travellers, to complement three existing permanent sites, including one at Kelty.
A decision is expected to be made around the summer regarding sites, which include one each at Cairneyhill and Crossgates, and will be supplied with water, black bags, portable toilets and waste removal.
Mr Mills said there was a need for change, adding, "The relatively poor experience of Fife Council in seeking to manage large encampments on public and private land is mirrored by other local authorities in Scotland.
"The high level of negative publicity and council and police activity during 2010 is not sustainable."