Robert Jenrick has threatened to send in appointed commissioners to run parts of Liverpool City Council after its “multiple apparent failures”.
The local government secretary said a report into the council paints a “deeply concerning picture” with a “pervasive and rotten culture”.
He told the Commons about instances of documents left in skips or destroyed, the awarding of “dubious” contracts and an “environment of intimidation” in which staff were forced to not question decisions.
Mr Jenrick said “given the gravity of the inspection findings” he is proposing to transfer “all executive functions associated with regeneration, highways and property management at the authority to the commissioners” appointed by him if the council does not come to him by 24 May with sufficient plans to improve processes.
The report was compiled by local government inspector Max Caller who has been investigating irregularities in the awarding of building contracts in the city after he was appointed by Mr Jenrick in December.
His team were sent in to Liverpool City Council following the arrests of five men, including elected mayor Joe Anderson, who was held on suspicion of conspiracy to commit bribery and witness intimidation.
The council’s director of regeneration, Nick Kavanagh, was also arrested as part of the police probe into building and development contracts in the city, and this week it was confirmed he had been dismissed from his role.
In a statement to the Liverpool Echo, he said he intended to clear his name at a tribunal.
Mr Anderson, who stepped aside from his mayoral role last year, has also denied any wrongdoing.
Merseyside Police said all suspects remain under investigation but bail has not been extended.
Local elections, including a vote to elect a successor to Mr Anderson, are due to take place on 6 May.