Services for children, the elderly and vulnerable adults have been criticised in the report
Providers of care and social services in Wales have been told they need to improve their quality and consistency.
The annual report of the Care and Social Services Inspectorate for Wales (CSSIW) praised a better performance.
But it also urged local councils and care providers to implement change more quickly and highlighted differences between services across Wales.
The report acknowledged "many examples of good practice" while calling for an increase in the "pace of change".
In her report, the chief inspector for care and social services, Imelda Richardson, said there was more evidence of respect for the dignity of people who use care and social services, as well as their involvement in decision-making.
But Ms Richardson also called for services to be modernised, amid pressure on finances.
"I think when money gets tight everybody starts to focus on what are the priorities
Imelda Richardson, chief inspector for care and social services
Speaking on BBC Radio Wales, she said there had been a "great deal of improvement" across the sector.
"But there continues to be a too great a variation between those local authorities that provide very good services and those who don't and across the range of the quality of services that are provides in Wales," she said.
Ms Richardson said the financial pressures should not stop improvements being made.
"I think when money gets tight everybody starts to focus on what are the priorities, the things that are absolutely essential to those that were desirable," she added.
"And that means really working with better partnership arrangements with other authorities who are doing well, learning from those who are doing well so that you're able to refocus, redesign your own services and also listening to what people themselves want because often they want quite simple services and not complex ones."
Welcoming the report, the Care Council for Wales said "radical thinking" about how to plan, develop and regulate the workforce was needed.
Chief Executive Rhian Huws Williams said the council agreed "wholeheartedly with the CSSIW's call for increased impetus to improve services, particularly in this challenging financial climate".
"It is a challenge that all parties responsible for social services and social care must sign up to and face together," she said.
The CCSIW, which is an "operationally distinct division" of the Welsh Assembly Government, was launched in April 2007.
It was set up after the merger of the Care Standards Inspectorate Wales and the Social Service Inspectorate Wales.
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