Coffee shop chains must go "further and faster" to develop recyclable cups as new research reveals more than 2.5billion are thrown away in the UK every year - enough to go around the world five-and-a-half times.
The Local Government Association (LGA), which represents more than 370 councils in England and Wales, wants the coffee giants - such as Starbucks and Costa - to follow the lead of the orange juice industry who have developed a system for collecting and recycling empty cartons.
Research has shown that fewer than one in 400 paper cups handed out by high street coffee chains are being recycled.
Experts say that is because most have a plastic coating that must be separated from the paper first, which ordinary recycling systems are not set up to do.
Campaigners say Starbucks, Costa, Caffe Nero and Pret leave customers with a misleading impression about how environmentally friendly they are.
Cups from Costa - the biggest chain with more than 2,000 UK stores - carry the recycling symbol of three arrows in a continuous loop.
Cardboard sleeves issued with Caffe Nero and Pret cups carry a recycling symbol. Pret's sleeves say '100 per cent recyclable' and Caffe Nero's say '100 per cent recycled.'
Campaigners suspect this may lead customers to believe that this label applies to the whole cup, rather than just the sleeve.
Most discarded coffee cups end up at landfill sites, creating an estimated 25,000 tonnes of waste - enough to fill London's Royal Albert Hall - which is a significant extra cost. Council taxpayers are ultimately the ones left to foot the bill.
Local authorities across the country work very hard with businesses and residents to provide high quality waste collection services, embracing innovative solutions and new technology.
As a result, recycling rates have quadrupled in the past decade. But it is proving hugely costly for councils. English councils alone currently have to spend £3.3 billion a year on recycling, collecting and disposing of waste.
Peter Box, the LGA's environment spokesman, said: "Two-and-a-half billion paper cups are thrown away each year and because of the way they are designed it is extremely difficult to recycle them.
"Many end up in landfill sites, costing council taxpayers millions of pounds.
"Councils, who have experienced substantial budget reductions, are doing everything they can to try and tackle this but they need the industry to step up. This means coffee giants working with councils to find practical solutions.
"The industry has recently shown signs of heading in the right direction on this issue - but it needs to go further, faster and demonstrate positive and immediate action in developing recyclable cups.
"Recycling has been a real success story for councils and residents, and rates have quadrupled in the last decade. It is extremely frustrating that this hard work is being damaged by a lack of recyclable paper cups.
"Retailers, manufacturers and caterers must be doing more to bring down the 23 million tonnes of waste generated each year."
The issue hit the headlines earlier this year when TV chef Hugh Fearnley-Whittingstall launched a campaign against coffee cup waste, leading to Starbucks agreeing to offer customers a 50p discount on drinks if they brought in their own cups.
The US giant has just announced it is now going one step further by giving a trial run to a new british made 'green' cup.
A spokesman said: "We are very interested in finding out more about the Frugalpac cup and we will be testing it to see if it meets our standards for safety and quality with a view to trialling its recyclability."
Entrepreneur Martin Myerscough came up with the design which has a thin plastic membrane that floats away during the paper recycling process, meaning the materials can be recovered and re-used.