The Washington-based Council on American-Islamic Relations said its office alone received 602 reports of discrimination against Muslims in 2002, a rise of 15 percent over the previous year.
The report says that there has been a hike in "Islamaphobic rhetoric" after the September 11 attacks on the World Trade Centre and the Pentagon which sparked a wave of detention of Muslim immigrants by US Justice Department for immigration violations.
"We have also witnessed the negative results produced by government policies that target ordinary Americans based on religion, ethnicity or national origin," said CAIR Research Director Mohamed Nimer.
"It is this guilt by association that has created a sense of siege in the American-Muslim community," he added.
Bush campaign to reach out to
Muslims has not prevented backlash
In the first days after the September 11 attacks, the Bush administration made a point of reaching out to Muslims in a bid to prevent a backlash against that community.
"However, since that initial period of support a number of government policies have singled out Muslim individuals and organisations," the report said.
The council said the Justice Department continued to act "in the name of combating terrorism when in fact they have targeted broadly Arabs and Muslims."
The September 11 investigation dragnet in 2002 included special registration requirements that singled out students and visitors from Muslim-majority countries.
The Justice Department reacted to the new report by strongly dismissing suggestions race and religion played a role in its investigations.
"The Justice Department has taken measures to combat terrorism, and in no way whatsoever has a person's race or religion been a factor in the different measures the government has taken," spokesman Jorge Martinez said.
He said the department was committed to preventing, investigating and prosecuting so-called "backlash crimes" against people from the Middle East, Muslims and others.
Muslim charities shut down
The report said three Muslim charities had effectively been shut down since December 2001 and were now locked in legal battles against the government.
The report also highlighted FBI hate-crime statistics and said the agency's 2002 annual report said attacks on people, institutions and businesses identified with the Islamic faith increased from 28 in 2000 to 481 in 2001.
The report detailed "police profile incidents" where Muslims were questioned while doing mundane activities such as walking on public roads or shopping in malls.
Some Islamic centres and Muslim groups reported violent attacks.
In Florida, a man rammed his truck into the Islamic Centre of Tallahassee on 25 March 2002, while in Andover, Massachusetts, a new school bus for the Islamic Academy of Peace was torched.