The Department for Culture, Media and Sport are proposing the sanction as part of a clampdown on the marketing stunts, AFP reports. A jail term is also one of the punishments being discussed.
"Advertising on the human body could lead to a fine of £20,000 ($31,700)," a government spokesman said.
"It is about potential ambush marketing and trying to crack down on that. Sponsors pay a large amount of money to be the official sponsors of the Games."
Companies such as British Airways and BP have each paid £700 million to become official partners of the 2012 London Olympics.
"These advertising and street trading regulations protect their investment and association with the Games," the spokesman added.
The rules have been passed through the House of Commons and are currently waiting for approval from the unelected upper House of Lords.
A man interrupted an equestrian event at the 2008 Beijing Games with the name of a website written on his bare chest.
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