The Taxpayers' Alliance (TPA) said only the "extreme sanction" of stripping people who refused to do 30 hours' activity a week of all state help would force them to seek "proper jobs".
And it said ministers should seek an opt out from EU rules if necessary to give welfare reforms the necessary bite, warning the flagship Universal Credit scheme would otherwise have "limited effect".
In a report written by entrepreneur and former Conservative parliamentary candidate Chris Philp, the group which campaigns for lower taxes hit out at the cost of welfare dependency.
Two thirds of the jobs created since 2000 were taken by "immigrants prepared to work hard rather than rely on benefits" while many Brits "evidently weren't interested", it said.
Under the proposed scheme, individuals claiming the new Universal Credit would have their payments automatically suspended if they declined to take part in prescribed activities.
Claimants employed for fewer than 30 hours a week would be expected to make up the difference and the time would be reduced to allow for those with childcare "or similar obligations".
Parents of under-fours and those caring for someone with a severe disability would be exempt as well as OAPs.
Those claiming Incapacity Benefit or Employment Support Allowance would be expected to take part in "activity that they are physically able to do".
The requirement would kick in later for those with a better employment history - after two years for those with five years of National Insurance payments down to three months for those with less than two years.
As many as 575,000 claimants could be involved in the early stages.
Universal Credit - which is presently being piloted ahead of a UK-wide introduction - brings together six benefits including Jobseeker's Allowance, Income Support, Child Tax Credit and Housing Benefit.
Stopping all such payments was designed to end the situation where people could claim H ousing Benefit and the Child Tax Credit while not seeking work.
The report concluded that present Government schemes were "sensible" but "need to be strengthened to stand a better chance of delivering the radical change our country needs".
A similar Mandatory Work Activity regime was undermined by "very weak" sanctions for non-compliance that were anyway used in only 11% of cases, it said.
While Universal Credit was a welcome move to try to ensure work always paid, overseas experience suggested it would have only "a limited effect" as some people would still be happy to stay on benefits.
There was "compelling" evidence from the US and Canada that the tough system worked, with welfare caseloads reduced by between 54% and 80%, it suggested.
And based on those programmes, the TPA calculated that in the UK it "should rapidly lead to a gross saving of £3.51 billion per year on an ongoing basis and a net saving of £2.46 billion in the first year".
It would cost £1.05 billion to administer in the first year.
"It may be that changes to, or opt-out from, some EU law is required to fully implement this. If so, the Government should include this in their upcoming EU renegotiation," the report concluded.
"Although the complete suspension of all Universal Credit benefit payments may seem an extreme sanction, the evidence from the US suggests that this is required to make the schemes fully effective.
"The increased longevity and widened scope of these sanctions will give them much more teeth than the current time-limited sanctions, which are only occasionally applied.
"This sanction has real teeth. It will deliver results."
TPA chief executive Matthew Sinclair said: " The Government is improving the incentive to work but they need to go further and remove the option of sitting at home and claiming benefits entirely.
"Taxpayers rightly expect something back for the enormous amount they pay for out-of-work benefits, at the very least a real commitment to find a job as soon as possible.
"You should have to work for the dole."
It received the backing of Labour former welfare minister Frank Field who urged his party to "seriously look again" at the idea.
"The next Labour government must ensure that claimants are not simply left drawing benefit rather than having an offer of work," he said.
"Benefit payments should help form the pool of resources to fund Labour's future jobs fund Mark II."