Published today by the House of Lords' Constitution Committee, the report also claimed the controversial Brexit legislation "authorises conscious and deliberate breaches of the UK’s obligations under international law”.
The findings are a blow to the UK Government, which has repeatedly insisted the Bill is both good for Scotland and legally sound.
In the report, it says: “"We are not convinced that opportunities for managing the UK internal market through the common frameworks process have been exhausted.
“This contributes to our doubts about the necessity for the Bill”.
It also warns the legislation "provides the UK Government with powers that could allow it to alter the competences of the devolved administrations in significant ways”.
The scathing report also called for the UK Government to explain "why such a broad power for the UK Government to spend money in devolved territories has been included in this Bill”.
The SNP’s shadow Scotland secretary Mhairi Black claimed the report was proof the Bill was a “power grab”.
She said: “Not for the first time has the Tory government’s law-breaking Internal Market Bill been criticised for its dangerous and unprecedented attempts to undermine devolution and override the democratic decisions of the devolved Parliaments.
“This damning report not only warns of the threat to the devolution settlement and calls out the Tories' attempts to legislate over devolved matters, or the fact that Bill allows for ‘deliberate’ and ‘conscious’ breaches of international law, but it questions the need for the Internal Market Bill entirely given the UK Government’s failure to go through the common frameworks process that's already in place.
“It’s clear from the report's conclusions that had the UK Government gone through the already set-up common frameworks process, then it would ‘obviate’ the need for the Bill.
"Scotland has been entirely bypassed throughout this process and it's no secret that the Tories are laying the groundwork for an unprecedented power grab against the devolved governments.”
The Scottish Government's Minister for Europe Jenny Gilruth said: "This House of Lords report underlines why the Bill is unacceptable and why it should be dropped. It agrees with our view that the Bill allows the UK Government to alter the competences of the devolved government in significant ways.
“It is now beyond any doubt that this Bill undermines the devolution settlement and constrains the ability of the Scottish Parliament to make distinctive policy choices for Scotland."
Tory ministers had openly admitted the legislation would break international law and enraged Brussels by enabling them to overwrite parts of the EU Withdrawal AgreementAlso reacting the report, the Bar Council warned the UK Government breaking law sent a bad message to the world.Chair Amanda Pinto QC said: “Adherence to the rule of law is not a game – of chicken, or anything else – where the players agree the rules and then break those that don’t suit them.
“Threatening to breach international obligations has the inevitable effect of undermining the rule of law and by extension, the credibility of our laws domestically and our reputation internationally.
"How can we expect our citizens to obey the rules and potential trade partners to trust us to keep our word when the government acts like this?”