The UN has said that Sri Lanka could face an international probe unless it properly investigates suspected war crimes and other abuses from the civil war that ended in 2009.
Navi Pillay, the UN High Commissioner for Human Rights, said on Wednesday she had seen no new or comprehensive Sri Lankan effort to properly and independently investigate as the UN's 47-nation Human Rights Council had repeatedly demanded.
As Australia and Britain were encouraging engagement, rather than isolation of Sri Lanka on Wednesday, Pillay said in the report that Sri Lanka might be sliding towards an authoritarian system, as President Mahinda Rajapaksa gathered power around him.
Her report said that she would recommend that the Council establish its own probe if the South Asian island nation does not show more "credible'' progress by March.
Pillay said the largely Buddhist South Asian state was also seeing a surge of violence against religious minorities - Christians, Muslims and Hindus - while the Colombo government stood by.
Pillay said she had found great disquiet "about the degree to which the rule of law and democratic institutions in Sri
Lanka are being undermined and eroded".
Sri Lanka's Ambassador Ravinatha Pandukabhaya Aryasinha rejected the criticism, saying Sri Lanka has a "genuine and credible commitment'' to reconciliation between the Sinhalese majority and the ethnic minority Tamils who lost the civil war.
Australia and Britain encouraged countries to participate in the Commonwealth leaders' meeting to be held in Sri Lanka in November.
Human rights groups have urged a boycott.
Australian Foreign Minister Julie Bishop said on Wednesday more could be achieved by engaging Sri Lanka than isolating it.
She welcomed this week's elections in the island's north that were won by a party representing minority Tamils in a region that was ravaged by a quarter-century civil war.
The Commonwealth is a grouping of 54 nations that were once part of the British empire.