South Lanarkshire Council placed staff members suspected of wrongdoing under surveillance using the powers, which were introduced to combat serious crime and terrorism.
The legislation allows local authorities to install hidden cameras, intercept emails and secretly follow people who are suspected of breaking the law.
An inspection by the UK Government's Office of Surveillance Commissioners found that the Regulation of Investigatory Powers (Scotland) Act (RIPSA) had been used three times against employees in the last three years.
Bosses at South Lanarkshire were warned not to use the powers against their own staff in future as they were not introduced for that purpose.
Staff at the council have now been told that the practice will cease.
In a report to councillors, Paul Manning, the council's executive director of finance and corporate resources, said: "The inspector noted that three applications were in relation to surveillance of council employees.
"He stated that RIPSA should only be engaged when the council is acting in relation to its core functions and recommended that we cease to use RIPSA in relation to surveillance of our employees.
"It has been agreed with the head of personnel services that RIPSA will no longer be used for this purpose but that surveillance of employees should be subject to the same level of scrutiny as that involved in RIPSA applications.
"A separate set of documentation has been prepared for these purposes which removes reference to RIPSA but otherwise requires the same tests of necessity and proportionality to be met. The unions have been consulted and are in agreement with this action."
Under RIPSA legislation, councils are able to use directed surveillance, such as the bugging or photographing of someone in a public place, or undercover agents to gather evidence.
Councils do not need to go to court but can green light their own covert operations.
Scottish local authorities have used the powers more than 1500 times over the last five years.
However, they have previously been criticised for launching spying operations for trivial reasons.
Probes have been launched into loud televisions, slamming doors, vandalised washing lines and people running up and down stairs. Others targeted have included litter louts, flytippers and those who fail to clean up after their dogs.
Nick Pickles, director of privacy and civil liberties group Big Brother Watch, called for officials to be held to account for approving the use of the powers to carry out surveillance on staff at the council.
He said: "Undercover surveillance is not something to be used lightly and these serious powers were not introduced for council managers to snoop on their staff.
"Organisations shouldn't be able to approve their own surveillance operations because it leads to exactly this kind of abuse.
"Of course the central question is that a council officer had to sign off on these operations as necessary and proportionate when they were clearly not. They should be held to account for that failure."
Paul Manning, the authority's Executive Director of Finance and Corporate Resources, said: "The council has rigorous standards in place for any investigation concerning employees.
"After its routine inspection last year the Office of the Surveillance Commissioners (OSC) issued a positive report which stated that 'the Council has a professional approach in relation to the use of RIPSA legislation and has appropriate systems and processes in place to conduct covert activity effectively.'
"The OSC recommended four minor changes to the protocols, including that RIPSA should not be used if the council has to carry out surveillance of employees. There was no suggestion that any inappropriate surveillance had been done. Rather, the recommendation simply suggested such surveillance should not be under reference to RIPSA.
"We agreed these changes but in doing so took steps to ensure that any surveillance of employees should remain subject to the same level of scrutiny that is applied to RIPSA applications. That offers employees the same levels of protection as the general public, and this was agreed with the trades unions when the changes were made following the OSC inspection."