"China needs to move more quickly toward a market-determined exchange rate and allow greater appreciation of the [yuan] against the dollar in the near term," said the report.
The report said there was ample evidence that the yuan was "substantially undervalued".
It also urged the Chinese government to move in an "expeditious" way to ensure that the value was set by market forces and not managed by the government.
The decision raised the ire of US manufacturers and their support lobby in congress.
"During a global slowdown you can't have countries trying to take advantage of other countries by manipulating their currencies"
Frank Vargo, US National Association of Manufacturers
They have argued that China's undervalued currency is the key reason for the record trade gap between the two countries.
"The global economy is slowing down and China cannot continue to seek larger and larger trade surpluses," Frank Vargo, the vice-president for international affairs at the National Association of Manufacturers, said.
"During a global slowdown, you can't have countries trying to take advantage of other countries by manipulating their currencies."
Vargo said he hoped the forthcoming administration of Barack Obama, the US president-elect will come to a different conclusion.
The US trade deficit with China is the largest ever recorded with a single country and has recently been setting new monthly highs.
Days earlier, Henry Paulson, the US treasury secretary, attended high-level talks in Beijing aimed at pressuring China to allow its currency to appreciate more quickly, but failed to achieve much.
Last week Paulson said he hoped the incoming US administration will continue discussions with China over the currency issue.