Audit Scotland identified areas of concern at Argyll and Bute Council which has had frequent changes in leadership and political alliances in recent years.
Controversial issues such as potential primary school closures and the sale of Toward Castle and Ardentinny outdoor education centres have been divisive and have "damaged trust" between councillors as well as between some councillors and senior officers, the report found.
Argyll and Bute Council is led by an administration comprising 27 councillors from both the Argyll and Bute for Change Alliance and the Argyll, Lomond and the Isles Group, with eight SNP councillors and one other councillor making up the opposition.
The administration has been subject to frequent changes since 2011, which have resulted in a "lack of collective strategic leadership by councillors", Audit Scotland said.
"The political groupings have been finely balanced, meaning small groups and individuals are in a position to influence political business by holding the balance of power," it said.
"This, and then subsequent changes in alliances, is exacerbating distrust and strains on working relationships.
"Councillors also highlighted their concern that this could mean that to gain support, specific local issues may gain a disproportionate affect on strategic priorities."
Working relationships between councillors and between a few councillors and officers are "strained", while tensions between newer and established members are also evident.
"While the problems are not yet affecting frontline services, they are beginning to inhibit progress with strategic planning and there is a risk that services may suffer in the future if the current difficulties are not addressed", the report said.
Full council meetings can last up to eight hours and yet are still unable to look at all of the items due to be considered. The meetings are "a challenging environment" for members, Audit Scotland said.
"There is widespread acceptance within the council that the current situation is not sustainable and that rapid improvement is needed. This acceptance is an important foundation on which to build."