The National Development and Reform Commission (NDRC) admitted the country has failed to curb soaring prices in the real estate sector and will introduce stricter measures.
"The gap is big in light of (the target of) the '90-70' regulation," it said in a statement on its website.
The State Council released a document last year requiring houses with an area of less than 90 sq m must account for 70 percent or all the total homes being built.
The NDRC said the ratio was raised from 21.16 percent last year to 24.73 percent in the January-August period, still far below the required level.
Investment in real estate development nationwide increased by 29 percent from January to August, 5 percentage points higher than the previous year, according to the NDRC.
From January to August, sales of houses had increased 30.9 percent, 21.6 percentage points higher than for the same period last year.
"The market demand is strong while the supply-demand gap is relatively big," the NDRC said.
House prices had risen by 5.4 percent, 6.4 percent, 7.1 percent, 7.5 percent and 8.2 percent year on year respectively from April to August. In Shenzhen and Beijing, cities that had witnessed the fastest growth, the annualized price rises had been higher than 10 percent in each of the five months, the NDRC said.
Some middle-sized cities, such as Beihai in South China's Guangxi Zhuang Autonomous Region and Urumqi of Northwest China's Xinjiang Uygur Autonomous Region, had also registered strong growth of more than 10 percent in August, the NDRC said.
Cities in the Yangtze River Delta, previously showing some signs of a slow-down in house price growth, had seen their prices accelerate recently, the statement said.
The NDRC attributed the failure to meet the regulatory requirement of the State Council to the dereliction of duty of some local governments.
"Some places had failed to act more actively to adjust the structure of house supply and stabilize house prices," the statement said.
The monetary and taxation policies targeted at stabilizing house prices have failed to work, it added.
That some land set aside for building houses had not been developed in a timely manner is another factor, the commission said. Some developers had also hoarded land and houses to profit from rising prices, it said.
Recent dips in the stock market had shifted some investors to the real estate market, which had stoked the fire, it said.
The NDRC said it will strengthen implementation of existing policies and make lending and taxation policies more "targeted" at stabilizing house prices.