Divisions between Britain's ethnic groups are deeper than ever - and are fuelling religious and political extremism, a report has claimed.
The CRE says Britain remains racially divided
The Commission for Racial Equality report also said that 15 government departments are not meeting their own obligations on tackling discrimination.
It suggests action may be taken against the departments, which include health, education, home and foreign offices.
The government promised "positive and robust action" to address the concerns.
In a final assessment of race relations in Britain before it becomes part of the new Commission for Equality and Human Rights (CEHR) next month, the CRE warned Britain remained a place of "inequality, exclusion and isolation".
Its three-year assessment of standards in Whitehall concluded many government departments - as well as the Olympic Delivery Authority - were failing.
The CRE has the power to take legal action against racially discriminatory organisations under the Race Relations Act 1976 and it can oblige organisations to change the way they operate.
CRE director Nick Johnson, the report's author, described the report findings as "very troubling".
"While some public bodies such as the criminal justice agencies have made huge strides in the area of race relations, others have fallen down," he said.
"It is shocking that Whitehall departments and those leading our Olympic delivery, rather than leading by example are in fact failing us time and time again."
'Disillusioned and disconnected'
He said ethnic segregation, residentially, socially and in the workplace, remained in Britain.
"Extremism, both political and religious, is on the rise as people become disillusioned and disconnected from each other," he said.
"The simple fact is despite the progress that has been made, if you are an ethnic minority Briton, you are still more likely to be stopped by the police, be excluded from school, suffer poorer health treatment and live in poor housing."
Racial inequality was "alive and kicking" and to achieve an integrated Britain there needed to be "equality for all sections of society, interaction between all sections of society and participation by all sections of society," he added.
Local authorities and some agencies were fulfilling their legal obligations, sometimes on lower budgets than those departments which were failing, the report said.
Mr Johnson said he now feared racial equality would move down the political agenda when the CRE was absorbed into the CEHR after 30 years of work.
"We are concerned that there will be pressure to focus on some of the other strands, and a worry the CEHR will not be as robust as we have been."
'Positive national picture'
A spokesman for the Cabinet Office said government departments had reacted positively to the CRE's observations and ministers and senior officials were fully committed to "delivering on the government's diversity agenda".
A spokesman for the Department of Communities and Local Government said: "The national picture on cohesion is a positive one.
"Recent evidence published by the Commission on Integration and Cohesion suggests that 80% of people think that individuals of different backgrounds get on well in their local area.
"There is more that binds us together than divides us. But we are not underestimating the challenges faced by particular local areas.
"That is why we will be responding to the commission's report in the coming weeks, and are already beginning to take forward many of its recommendations for practical and local action."