Young people in the UK are more likely to take cocaine, Ecstasy and amphetamine than those in any other country on the Continent, it said.
They are using cocaine in quantities and with a frequency unmatched anywhere else in the world apart from the U.S., the report found.
One in 20 schoolchildren of 15 and 16 - around 200,000 teenagers - have used the drug, it said.
The analysis, by the European Union's drug agency, also pointed to levels of deaths from drugs that are higher here than in any other major nation in the EU.
Only four small European countries - Luxembourg, Estonia, Norway and Denmark - lose a higher proportion of their young people in drug-related deaths, the report
said.
Deaths linked to drug abuse in Britain are, the figures suggest, running at double the rate of those in Germany and four times those in France.
Ecstasy use 'remained consistently higher in the UK compared to other countries', said the report, from the Lisbon-based European Monitoring Centre for Drugs and Drug Addiction.
It suggested that young Britons who would in the past have used amphetamine are switching in large numbers to cocaine.
The report said that four European countries now have a higher level of cocaine use than Australia, which has high levels. But only Britain 'reports a lifetime prevalence estimate that is similar to that of the U.S.A.'.
The 5 per cent of teenagers and young adults who use cocaine in Britain is now ahead of levels in Spain, where links to South America have produced a cocaine boom in recent years.
Britain has seen cannabis use decline. The report noted that the UK had highest cannabis use in the mid-1990s but now ranks third.
Eighty per cent of those who had stopped using cannabis 'cited a lack of interest', the report said.
The report came as a rebuke to ministers, who are trying to paint a picture of declining drug use among young people. They point to the controversial British Crime Survey as evidence of lower drug abuse.
The European report showed that even the real good news for Home Secretary Jacqui Smith is qualified.
While cannabis use in Britain has been going down, young people in this country remain more likely to use the drug than those in any EU country apart from France and Denmark.
Shadow Home Secretary Dominic Grieve said: 'This report confirms Britain's status as the cocaine capital of Europe, not to mention the fact we also have the highest prevalence of amphetamine and Ecstasy use amongst adults.
'It is particularly disturbing that we have the highest proportion of 15 and 16-year-olds using cocaine - the Government's failure is betraying a whole generation of young people.'
He added: 'This is due to Labour's chaotic, confused and staggeringly complacent approach to drugs. Drugs wreck lives, destroy communities and fuel crime - the fact Labour do not recognise this make them part of the problem, not the solution.'
The Advisory Council on the Misuse of Drugs, which advises Miss Smith, is holding an inquiry into whether Ecstasy should be downgraded from the most serious legal status of class A. continues here
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