The new gambling bill will hit the income of small pubs, says the British Beer & Pub Association (BBPA).
Giving evidence in Parliament this week, the trade association said that the relaxation of gambling laws "will be a licence for a gambling boom in big money casinos but squeeze out the casual fun fruit machine and damage the income of publicans".
The BBPA believes the proposals contained in the bill would boost the multi-million pound "hard gambling" casino market while introducing further regulations on the social gambling enjoyed in pubs.
It is concerned in particular about fixed odds betting machines in betting shops and casinos, which are allowed larger prizes than pub machines, which have a limit of only £25.
Martin Rawlings, director of the BBPA, said: "We're being squeezed out of the game, which is hitting licensees' pockets hard. What is clear is the proposed deregulation could lead to a rapid expansion of large casinos and remote gaming via the internet while the traditional machine market such as in the pub where customers can play in a relaxed environment will suffer.
"We believe pubs should be allowed four machines by right instead of having to apply for special permits and that maximum stake and prize levels should be increased to 50p and £50 respectively."
In November last year Tessa Jowell, secretary of state for culture, media and sport, indicated that the government is reluctant to allow more than the current two machines per bar.
A survey conducted for Business in Sport and Leisure at the end of last year revealed that 80 per cent of people wanted more opportunities to gamble and 76 per cent favoured more machines in pubs and clubs.