The Rural Coalition said the distribution of central government grant to local authorities needed to be fairer.
Coalition chairman Lord Taylor of Goss Moor made the call in a letter to communities secretary Eric Pickles on 8 November.
Urban local authorities in England receive 50% more in central government grant than rural local authorities, says the document.
At the same time, council tax bills are 21% higher for rural residents than for urban residents.
Yet rural local authorities still had less money per head to spend on services for their residents than their urban counterparts.
Delivering services in rural areas can be relatively expensive, given distances and fewer economies of scale, the report says.
Given all the evidence about the extent of 'sparsity costs', insufficient account is taken of it in the allocation formula for government grant, it adds.
Lord Taylor said the Rural Coalition wouldn't expect all local authorities to receive the same central government grant.
But he added: "A 50% difference in that grant seems hard to justify."
Rural areas faced particular issues which local government finance needed to recognise, said Lord Taylor.
There was just over a 10% urban-rural difference in the proportion of households below the poverty line, for example.
The Rural Coalition agreed with the Rural Services Network that this funding gap should be addressed.
Lord Taylor said: "Their suggestion for initially narrowing that gap by 10% seems a fair and reasonable one."
Both the Rural Coalition and the Rural Services Network want the gap addressed by 2013 when business rate collection is likely to be reformed.
The report, Cost of Providing Services In Rural Areas, can be downloaded here.