Mr Entwistle left the BBC last month with a pay-off worth £450,000 – double the amount specified in his contract – along with a year’s health insurance and money for PR advice.
In its report, the Public Accounts Committee said that was out of line with severance packages in the public sector.
Speaking to BBC Radio 4’s Today programme, committee chairwoman Margaret Hodge said: “Public servants should not be rewarded for failure. But that was exactly what happened when the BBC Trust paid off the former director general, George Entwistle.
“This cavalier use of public money is out of line with public expectations and what is considered acceptable elsewhere in the public sector.”
The committee also said it was “extremely concerned” that the BBC Trust rejected an offer for the National Audit Office (NAO) to examine payments made to Mr Entwistle.
“This inhibited Parliament’s ability to hold the Trust to account for its use of public money,” the report said.
MPs also criticised the benefits and severance packages for other senior staff at the corporation as “excessively generous,” including one of nearly £1m to former deputy director general Mark Byford, who left last year.
Mrs Hodge said: “We have asked the Comptroller and Auditor General to include in his 2013 programme of work on the BBC an examination of severance payments and benefits for senior managers.”
This website wonders whether Mrs Hodge is going to call Lambeth Council to account for their waste of public funds in unlawfully dismissing Brian Pead.