It calls for countries to pass domestic legislation making it a criminal offence to handle such timber.
The risk of prosecution would make wholesalers pay attention to the origin of wood they supply, advocates argue.
One of the authors of the proposal is the British Labour MP Barry Gardiner, who is Prime Minister Gordon Brown's Special Envoy on Forests.
Illegal timber means stolen wood, and that's what we are trying to combat
Barry Gardiner, MP
 He told BBC News that the consumer countries of tropical timber had a responsibility to reinforce the laws passed in producer countries, which are estimated to lose ?8bn ($15bn) a year in revenues due to illegal logging, according to World Bank figures. 
"If a tree was felled illegally, let's say in Ghana, and the wood from that tree ends up coming into the UK, then anybody who tries to sell that wood, who imports it or trades it in the UK, would be subject to a criminal prosecution," he said.
"It would ensure that some of the poorest people in the world recapture the full value of the product that is being stolen from them at the moment. Illegal timber means stolen wood, and that's what we are trying to combat."
Lacey Act
A step in this direction has already been taken in the United States, where an amendment to the so-called Lacey Act has been passed in the Senate, which would extend penalties currently applied to traders in illegally obtained wildlife to trees and plants harvested abroad. 
Similar measures are under consideration by the European Commission, and Mr Gardiner himself said he planned to propose legislation in the British House of Commons.
The executive director of Greenpeace UK, John Sauven, said the EU must act to crack down on the trade in illegal timber.
"Greenpeace has repeatedly exposed how illegal timber continues to freely enter the UK and it is vital that European legislation is introduced to ensure that all timber products come from environmentally and socially responsible sources," said Mr Sauven.
"As things stand today, companies who try to source timber responsibly are placed at a competitive disadvantage by others who choose not to question where their timber is sourced from. This situation is clearly unacceptable."
2015 vision
As the politicians put forward their proposals in Brasilia, the chief executives of 15 leading forestry companies issued a new "vision of tropical forestry for the year 2015", acknowledging the problems caused by deforestation and degradation of rainforests.
It calls for the implementation of credibly certified forest management practices and greater collaboration between forest enterprises and local communities. 
More effective protection of rainforests has taken on a new urgency in Brazil, following the publication of figures last month showing that deforestation in the Amazon had accelerated again in the final months of 2007, after three years of decline.