A public appetite for accessory dogs has encouraged the growth of "puppy mills", where animals are bred in cramped conditions before being transported across long distances.
The RSPCA, Animal Liberation and other groups say the practice, which was exposed in Eastern Europe this week, also exists in Australia, the Nine Network's SUNDAY program reports.
Backyard breeders who mass-farm dogs before shipping them interstate and overseas have been accused of shoddy trading.
The farms, which are legal in Australia, keep puppies in conditions comparable to those suffered by battery hens, critics say.
Sydney Lord Mayor Clover Moore has responded to the problem by proposing an "Animals Regulation of Sale" bill.
The bill would ban the sale of dogs through pet stops, the internet or newspapers, in a bid to crack down on impulse purchases.
Unregistered backyard breeders would no longer profit from the sale of the dogs, and the number of unwanted and abandoned animals could drop.
But the Australian Veterinary Association and the Pet Industry Association said the bill would make no difference to shelter admissions or euthanasia rates.
The groups said the bill would simply drive unregulated backyard shops further underground.
"Puppy mills" attracted worldwide attention earlier this week when Sky News exposed the cruel practice in Eastern Europe.
Puppy lovers eager to get their hands on "lapdogs" — the accessory canines made famous by stars like Paris Hilton — have been buying the animals at discount prices.
A Mexican hairless puppy, which would cost $3100 in the UK, can be bought for less than $415 at market in Hungary, the investigation revealed.
Among the most popular were Chihuahuas, Yorkshire terriers and golden retrievers.
For more on the puppy trade story, watch SUNDAY tomorrow at 7:30am on the Nine Network.
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