Margaret Beckett made the remarks at the launch of her department's annual human rights report on Thursday, and as 16 Afghan detainees from Guantanamo were being released in Afghanistan.
Beckett said: "The continuing detention without fair trial of prisoners is unacceptable in terms of human rights. But it is also ineffective in terms of counter-terrorism.
"It is widely argued now that the existence of the camp is as much a radicalising and discrediting influence as it is a safeguard to security," she said.
Beckett's comments are among the strongest condemnations of Guantanamo by a senior minister in the government of Tony Blair, the British prime minister.
Last month, Lord Charles Falconer, secretary of state for constitutional affairs and a close ally of Blair, said keeping prisoners beyond the reach of law was a "shocking affront to the principles of democracy".
The foreign office human rights report, published on Thursday, said Britain had made it clear to the US government that the circumstances under which detainees continue to be held in Guantanamo were unacceptable.
"We are concerned about reports of hunger strikes involving a number of detainees, and the tragic suicide of three inmates in May 2006," the report read.
"The continuing detention without fair trial of prisoners is unacceptable in terms of human rights. But it is also ineffective in terms of counter-terrorism"
British foreign secretary
"We believe the situation at Guantanamo underscores the need to find more suitable long-term arrangements for holding terrorist suspects within a clearer legal framework," it said.
The United States has been heavily criticised abroad over conditions at the Guantanamo base on Cuba, where it still holds about 450 inmates as enemy combatants.
Some have been held for more than four years without trial, branded as dangerous Taliban and al-Qaeda operatives.
Bush acknowledged earlier this year that Guantanamo was hurting the United States' image and said he would like to close it, but needed a way to deal with suspects in the courts.
The US Congress approved legislation last week to create a new military tribunal system for trying foreign captives, but it barred them from challenging their detention in the US court system.
Meanwhile, the UK has been criticised for its treatment of foreign terror suspects being held in Belmarsh, Long Lartin and Full Sutton maximum security prisons.
The Council of Europe committee on the prevention of torture warned the British government in August that detainees showed signs of serious mental disorder, which increased the risk of them committing suicide.
The investigation team have said that many of the "Belmarsh detainees" who were arrested in August 2005 have poor mental health conditions.
Red Cross representatives have had access for the first time to 14 terrorism suspects transferred last month from secret CIA-run jails to the Guantanamo Bay prison, the US military says.
The 14, who had been outside the reach of international monitors, include the suspected mastermind of the September 11 attacks, Khalid Sheikh Mohammed, and two other al-Qaeda leaders, Ramzi Bin al-Shiba and Abu Zubaydah.
The Geneva-based International Committee of the Red Cross (ICRC) said it began its latest visit to the US naval base at Guantanamo Bay, Cuba, on September 25.
An Afghan prisoner returns home
Navy Lieutenant-Commander JD Gordon, a Pentagon spokesman, confirmed the ICRC had been given access to the 14 during the visit.
Asked for details including whether the ICRC had completed visits to all 14, Gordon said: "We enjoy a confidential relationship with the ICRC and it must remain that way."
In another development, 16 Afghans were freed in Kabul on Thursday after being released from Guantanamo.
The Pentagon also said another detainee had been transferred to Morocco.
Some 335 prisoners have been transferred out of Guantanamo since the prison camp's creation in January 2002 and another 110 of the 450 still at the jail have been declared eligible for transfer or release, the Pentagon said.