The telecoms regulator Ofcom is clamping down on mobile phone companies that raise people's bills mid-contract by proposing that customers will be allowed to cancel without penalty if their provider changes the terms of their deal.

This would protect customers from "unfair surprises", Ofcom said, whose announcement comes days after O2 said it would be increasing monthly mobile bills by 3.2% for 7 million people.

The consumer group Which? claimed this would result in O2's customers paying almost £45m more a year, and that in total UK consumers face a £150m-a-year hit from rising prices.

Ofcom has been looking at how to protect customers on "fixed" mobile phone contracts from unexpected price rises, and has previously said the existing rules potentially "harm" consumers.

In November 2012, Vodafone increased bills for about 10 million customers by up to £1.55 a month. The increase was branded "shocking" by Which? and came a year after the company "simplified" customer bills by rounding them up to the nearest 50p.

The November Vodafone increase followed on from rises imposed by Orange, T-Mobile and Three.

Most consumers are unaware that mobile phone companies can increase prices mid-term after someone has signed up to what they thought was a fixed price for a specified period, typically two years. Consumers are usually unable to cancel without paying a fee, unless the increase is above a certain amount.

In 2012, Ofcom launched a review into the fairness of some contract terms, and it now said its proposed approach was to intervene to allow consumers to cancel their contract without penalty if their company announces any price increase during the period of the contract.

While attention has focused on mobile phone bills, the regulator said its planned measures would also protect consumers from price rises on fixed contracts for landline and broadband services.

Ofcom said it had considered a complete ban on price rises during fixed contracts, but said it thought that legally this might be problematic. "This proposed change would address consumer concerns that it is unfair that providers are currently able to raise prices while they themselves have little choice but to accept the increase or pay a penalty to exit the contract," the regulator said.

Ofcom received more than 1,600 complaints from consumers within the space of a few months, and Which? submitted a formal complaint regarding the tactic.

O2 announced in December that customers' monthly bills will increase by 3.2% from 28 February. This means someone currently paying £35 a month will pay £36.12 – an increase of £13.44 a year. It said customers can cancel their contract because of this, but as its terms and conditions allowed the company to put prices up once every 12 months due to inflation there would be a fee to pay.

Ofcom's consultation closes on 14 March and a decision is expected in June.