Visiting Baku, Council of Europe Secretary General Terry Davis said he was "surprised" by the proposals, which if adopted would take effect on January 1, 2009.
It would likely affect RFE/RL, the BBC, and Voice of America. There is no independent local broadcaster in the oil-producing Caucasus state.
"The government of Azerbaijan should realize that freedom of expression is one of the most important European values," Davis told a news conference.
He said he would discuss the issue with Azeri officials.
In October, the head of Azerbaijan's National Television and Radio Council, Nushiravan Magerramli, said according to the law foreign radio stations would have to stop broadcasting on local frequencies.
Magerramli said a final decision had yet to be taken, but that foreign radio stations would be able to continue broadcasting via Internet, satellite, and cable. Licences for foreign radio stations to broadcast on local frequencies would not be renewed as of the end of the year, and further steps would depend on their compliance.
The opposition says the proposed move was another attempt to stifle criticism of President Ilham Aliyev, who won reelection in a landslide in October but is accused of curbing democratic freedoms under the cover of an oil-fueled economic boom.