"Total bans of an activity constitute a measure of last resort that should be applied only if and where no less restrictive requirements to attain a public interest can be used," the draft document says.
In the case of room-renting sites like Airbnb, the Commission said banning short-term lets of apartments "appears difficult to justify" when limits on the maximum number of days apartments can be rented out would be more appropriate.
The guidelines will come as good news for the likes of Uber and Airbnb, which have faced outright bans or restrictions in some cities as established industry players complain of unfair competition.
In the "sharing economy", customers use the Internet to contract services such as ride-sharing, where amateur drivers displace professional taxis, or home-sharing, which reduces hotel demand.
A Berlin court on June 8 is handling the case of German Airbnb competitor Wimdu, which filed suit over the new regulation.
Additional reporting by Tina Bellon in Frankfurt, Michel Rose in Paris, Paul Day in Madrid, Toby Sterling in Amsterdam and Axel Bugge in Lisbon; editing by Adrian Croft