The UN special commission of inquiry for East Timor report said that Alkatiri had illegally armed civilians and "failed to use his firm authority to denounce the transfer of security sector weapons to civilians in the face of credible information that such transfer was ongoing and involved members of the government".
"Accordingly, the commission recommends further investigations to determine whether Mari Alkatiri bears any criminal responsibility."
East Timor descended into chaos in April and May following the dismissal of 600 soldiers by Alkatiri, a move that split the armed forces into factions.
The tension later spilled over into gang warfare that left at least 30 people dead and sent 150,000 fleeing from their homes.
In May, Australia led a force of more than 3,000 foreign peacekeepers to end the fighting.
The report also said that, Rogerio Lobato, Alkatiri's interior minister, and Roque Rodrigues, his minister of defence, provided weapons to civilians, creating "a situation of significant potential danger" and, therefore, should be held accountable.
"Accordingly, the commission recommends further investigations to determine whether Mari Alkatiri bears any criminal responsibility"
The UN inquiry report
The report also recommended that dozens of other members of the security forces be prosecuted for the killings.
Alkatiri declined immediate comment, but Xanana Gusmao, the East Timorese president, and Jose Ramos Horta, Alkatiri's successor, issued a joint statement appealing to all parties "not to take advantage of the substance of the report".
Observers have expressed concerns that the commission's findings and political rivalry ahead of May 2007 general elections could spark new violence, although the capital, Dili, remained calm on Tuesday.
An emergency cabinet meeting will be convened to consider the commission's conclusions, the leaders' statement said.