The report, quietly submitted to lawmakers last month, said that while Egypt has implemented some democratic reforms, "the overall trajectory of rights and democracy has been negative."
The six-page report, which the administration is required to send to Congress, said human rights and civil activists have reported a "steadily shrinking space for political dissent" that has prompted them to censor their activities or leave the country.
An estimated 16,000 people were arrested between July 2013 and March of this year. Some are members of the Muslim Brotherhood and others were arrested for violating a demonstration law that the Obama administration says is not aligned with international standards for protecting freedom of assembly.
Former President Mohammed Morsi was a member of the Muslim Brotherhood, but after his ouster, the government of current President Abdel Fattah el-Sissi banned the Brotherhood and staged a massive crackdown on the group, killing hundreds and jailing thousands.