Between 3,000 and 5,000 women have been smuggled into Israel in the past four years to work as prostitutes, according to a parliamentary inquiry.
The report described how the women are sold at public auctions for as much as $10,000 and forced to work up to 18 hours a day.
On average the women receive only three percent of the money they earn from prostitution, the report said.
Most of the women are from the former Soviet Union.
Many are raped and beaten as they are smuggled into Israel over the Egyptian border, the inquiry found.
Zehava Galon, of the opposition Yahad Party, presented the report to the speaker of the Knesset on Wednesday.
"We began this inquiry to investigate the extent of this phenomenon and raise political awareness of their plight and the brutal nature of the trafficking of women in this time of globalisation," said Ms Galon.
She said the biggest challenge in addressing the plight of women in the sex trade was changing the attitudes of the Israeli public and police.
The inquiry also criticised judges for passing light sentences, sometimes only community service, for men running prostitution rings.
The report called for minimum jail terms of 16 years for those convicted.
London-based rights group Amnesty International and the US State Department have also reported an alarming increase in prostitution rings in Israel.