A panel of lawmakers in the state assembly examined thousands of case files and interviewed dozens of former investigators, concluding that efforts to find the fugitive trio between 1998 and 2003 were a "complete disaster."
The neo-Nazi group, calling itself National Socialist Underground, allegedly killed eight Turks, a Greek and a policewoman between 2000 and 2007. It is also believed to be behind two bombings and 15 bank robberies.
The group's sole survivor, Beate Zschaepe, and four alleged supporters are currently on trial in Munich.
Zschaepe and her erstwhile accomplices, Uwe Mundlos and Uwe Boenhardt, grew up in Thuringia and first came into contact with the far-right scene there.
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The report lists a string of errors by investigators who failed to follow up leads that could have led to their arrest, beginning with the fact that police didn't start searching for the trio until six hours after finding explosives in a garage rented by Zschaepe.
The group's existence came to light in late 2011, after Mundlos and Boenhardt died in an apparent murder-suicide.
Authorities had previously attributed most of the killings to immigrant gangs, sparking a debate about institutional racism in Germany.
Earlier this week a man wounded in one of the group's alleged bomb attacks filed a lawsuit against Thuringia state for its failings in the case.