Its chairman Sebastian Edathy labelled as "shameful" the investigative failures, bad communication and prejudice that allowed the so-called National Socialist Underground (NSU) to murder 10 people over seven years without being caught.
The whole case had been "a historically unprecedented disaster", he said.
The NSU is now considered to have been a terrorist cell. Its surviving female member Beate Zschaepe is on trial, accused of lending vital support to the group's two gunmen who died in an apparent murder-suicide in late 2011.
German police and domestic intelligence services have since faced withering criticism for ingrained bias by associating terrorism only with far-left or Islamist groups, not neo-Nazis.
The case that shocked Germany has been studied for 19 months by an inter-party panel that, after questioning around 100 witnesses, today presented their more than 1,000-page report, arriving at unanimous conclusions.
Its members labelled the NSU case "a humiliating defeat for the German security and investigative agencies" and pointed to "massive institutional failures that resulted from a dramatic underestimation of the danger of the violent far-right".