The Home Office has denied claims it has been using a £140 million-a-year anti-extremism project to "spy" on innocent young Muslims.
The Institute of Race Relations said the "Prevent" scheme had been used "to establish one of the most elaborate systems of surveillance ever seen in Britain".
In a highly-critical report, it said teachers and youth, community and cultural workers were increasingly angry at being pressured to share information as a condition of receiving funding.
Among the details being sought were political opinions, mental health conditions and sex lives, as well as criminal records and evidence of alleged offences, it suggested.
The Institute said there was also strong evidence that "a significant part" of the programme involved "the embedding of counter-terrorism police officers within the delivery of local services".
"It is entirely appropriate that the police and intelligence services have placed a number of Muslim individuals under surveillance," the report, partly based on six months of interviews with community workers, concluded. "It is also right that channels should be made available for other professionals, such as youth workers and teachers, to provide information to the police if there are reasons to believe that an individual is involved in criminality."
But it went on: "What is at issue is whether professionals providing non-policing local services, such as youth workers and teachers, should be expected to routinely provide information to the counter-terrorist police not just on individuals who might be 'at risk' of committing a criminal offence but also on the political and religious opinions of young people, and the dynamics of the local Muslim community as a whole."
Turning public services into "instruments of surveillance" risk alienating young people from the very institutions best placed to meet the stated aim of the project to keep them out of the clutches of extremism, it suggested.
Among other findings were that the funding system effectively labelled the entire Muslim population a "suspect community" and that the scheme fostered social divisions.
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A Home Office spokesman said: "Any suggestion that Prevent is about spying is simply wrong. Prevent is about working with communities to protect vulnerable individuals and address the root causes of radicalisation."
