The poisonous tone of the referendum campaign on quitting the European Union has fuelled the demonisation of immigrants and created huge obstacles for social integration, according to MPs.
Migrants should be treated as Britons-in-waiting who are expected to eventually gain citizenship instead of being viewed as security threats, the All Party Parliamentary Group (APPG) on Social Integration said.
It found newcomers are increasingly leading parallel lives and warned that anti-immigrant rhetoric is making it harder for people to become fully involved in British life.
Councils should have a legal duty to promote integration and the Government must encourage "meaningful social mixing" between immigrants and Britons, the group recommended.
Businesses employing large numbers of immigrants should pay a levy that could be used to help ease the strains of migration on communities, MPs said.
They renewed calls for a regional immigration system but said some migrants could be expected to stay in a particular region for up to three years before being given the right to live anywhere in the UK.
The group, which has previously called for compulsory English lessons for people moving to the UK who cannot speak the language, said the classes should be funded through a student-loan style system.
Chuka Umunna, who chairs the APPG, said: "The demonisation of immigrants, exacerbated by the poisonous tone of the debate during the EU referendum campaign and after, shames us all and is a huge obstacle to creating a socially integrated nation.
"We must act now to safeguard our diverse communities from the peddlers of hatred and division while addressing valid concerns about the impact of immigration on public services, some of which can contribute to local tensions.
"We must start by valuing the contribution of all ethnic and minority communities to the UK. Rather than being seen as security risks, immigrants should be viewed as Britons-in-waiting, keen to participate in their community. The best way to do this isn't to leave newcomers and their communities to sink or swim, but to offer migrants more support to integrate into our society."
Critics accused the APPG of attempting to continue freedom of movement through the back door when it released its interim findings earlier this year calling for a regional immigration system.
In the full report, the group said it would be "perfectly plausible" for ministers to introduce a regionally-led system for non-EU immigration while "continuing to subscribe to some form of freedom of movement" post-Brexit.
EU rules requiring those moving around the bloc to have work or be financially self-sufficient have never been properly enforced in the UK, it said.
The group visited areas of high immigration in Yorkshire, Lincolnshire and Dagenham and found migrants are increasingly leading separate lives to the rest of the community.
In Boston, a town with a population of 66,900 that recorded an increase from under 1,500 to more than 8,000 in the number of Eastern Europeans in ten years, a senior council officer described the town as a "ticking time bomb of grievance".
Under a regional system, local leaders would be able to assess the impact of migration on public services and community cohesion, according to the report.
Regional immigration authorities would also be able to create a certain number of visas to meet specific employment needs but workers arriving under the scheme would be expected to stay in the area for two or three years before being able to move elsewhere in the UK, it said.
The report called on the Home Office to consider a system that puts migrants on an automatic path to British citizenship when they arrive in the country.
But it said citizenship should be earned rather than acquired and recommended "Britons-in-waiting" should take up volunteering or become involved in other types of community work.
Oliver Lee, CEO of The Challenge, a charity that promotes integration and also acts at the APPG's Secretariat, said: "Whether we are newcomers to this country or have been here for generations, we need to meet, mix and connect with one another. This is how we forge stronger and more cohesive communities. This report's recommendations have social integration at their heart and this is absolutely right."
Rebecca Hilsenrath, Equality and Human Rights Commission chief executive, said: "The tone of the political debate during and after the referendum increased divisions in our communities and caused significant distress to particular parts of society.
"We wrote to all political parties reminding all sides to be mindful of the consequences of their words.
"We should debate immigration while recognising that the vast majority of people coming to the UK want to play a full part, socially and economically, in our society.
"We should look carefully at any recommendations that promote social integration."
The Government says applying a regional immigration system would complicate the system and cause difficulties for employers.
"Integration is key to making sure migrants can achieve economic stability and play a role in their local community," said a spokesman.
"We have made £140 million available through the controlling migration fund to build community cohesion and encourage the integration of recent migrants, including a number of projects focusing on English language education, and we'll shortly be bringing forward plans for a new integration strategy.
"After we leave the EU we must have an immigration system which works in the best interests of the UK, and we will be setting out our initial proposals for this in the Autumn."
Richard Tice, co-chair of the Leave Means Leave campaign group, said Mr Umunna was "completely oblivious to the concerns of millions of hard-working British families across the country".
"There is nothing 'poisonous' about wanting to take back control over Britain's borders, in fact he should be ashamed to suggest there is," said Mr Tice.
"Chuka is in complete denial about the referendum result and is trying to retain a form of freedom of movement which is completely against the democratic will of the British people."