Guest houses should not be located in private residential buildings, a hotel owners group said in its call for stricter licensing rules to protect budget travellers.
The city should also tighten fire and building safety requirements to close legal loopholes that unscrupulous guest house operators might exploit, the group said.
The regulations drew concerns after a two-hour fire at Continental Mansion in North Point last month badly damaged a licensed guest house, injuring 25 people - many of whom were budget travellers residing in the temporary accommodation.
Michael Li Hon-shing, executive director of the Federation of Hong Kong Hotel Owners, said guest houses should be banned from operating in any private residential buildings as "it creates a nuisance for residents".
He suggested guest houses be allowed only on lower floors of commercial buildings for "an easy escape" in case of fire.
"Some operators run guest houses in units smaller than 230 square metres, just to dodge safety rules that require units bigger than that to install fire sprinklers," Li said.
"We should have the same fire safety requirements for hotels and guest houses. The lives of visitors staying at guest houses are not cheaper than those who stay in hotels. Everyone who comes to Hong Kong is our guest. We should treat them well."
Li said the Hotel and Guesthouse Accommodation Ordinance failed to distinguish clearly between hotels and guest houses, allowing guest houses that are not up to hotel standards to promote themselves as hotels.
On Sunday, Secretary for Home Affairs Tsang Tak-sing wrote on his blog that "the government has considered reviewing the ordinance regulating the guest house industry" after seeing enforcement problems with the law.
Li said he was glad that the government would review the law, which was drawn up more than two decades ago. He hoped it would take into account his recommendations.
"Guest houses have their value. We have no reason to dispute this," he said. "But the facilities have to be licensed and built according to standard fire prevention requirements. No legal loopholes should be left for operators to dodge ensuring the safety [of visitors]."
A spokeswoman for the Home Affairs Department said it understood there were discussions on reviewing the ordinance, and it would listen to views from different groups.
The blaze hit Continental Mansion, at the corner of King's Road and Cheung Hong Street. The block was under large-scale renovation and it is believed that construction debris in a back alley caught fire and the flames spread up the bamboo scaffolding surrounding the building.