Monday's assessment by the OSCE cited shortcomings including restrictions on the right to free assembly and irregularities in the vote count.
The report is likely to bolster the anger of opposition parties, who allege the vote was fraudulent and have called for a massive public protest on Wednesday.
The OSCE cited some improvements over previous post-Soviet elections in Azerbaijan.
But "the shortcomings that were observed, particularly during election day, have led us to conclude that the elections did not meet Azerbaijan's international commitments on elections", OSCE parliamentary assembly president Alcee Hastings said in a statement.
"It pains me to report that progress noted in the pre-election period was undermined by significant deficiencies in the count."
Ruling party lead
With votes from nearly 93% of the precincts counted, candidates from the ruling New Azerbaijan Party were leading in 62 races of the 125 races, with independents - who could include ruling party loyalists - ahead in 42 races and opposition candidates in 10, according to the Central Election Commission.
Most of those set to win seats were members of the current parliament.
The Ruling party led in 62 out of
125 races. Photo: Jody Sabral
The OSCE statement said observers witnessed attempts to influence voter choices, unauthorised persons directing or interfering in the voting process, and cases of ballot stuffing.
It said inking procedures, in particular the checking of voters' fingers for traces of ink in order to prevent multiple voting, were not followed in 11% of polling stations its observers visited.
Domestic observers and members of polling station commissions were expelled from some polling stations, the OSCE said.