Saudi Arabia has since the 1960s "sponsored a multimillion dollar effort to export Wahhabi Islam across the Islamic world.
"While entities from across the Gulf and Iran have been guilty of advancing extremism, those in Saudi Arabia are undoubtedly at the top of the list," Tom Wilson, a fellow at the Henry Jackson Society, said in a statement.
According to the hawkish London-based foreign policy think-tank, Saudi Arabia has since the 1960s "sponsored a multimillion dollar effort to export Wahhabi Islam across the Islamic world, including Muslim communities in the West".
The ultra-conservative kingdom is the cradle of the austere Sunni doctrine of Wahhabism and is home to Islam's holiest site in Mecca.
Funding from Saudi Arabia has primarily taken the form of endowments to mosques, the report said, which have in turn "played host to extremist preachers and the distribution of extremist literature".
The report also flagged that some of Britain's most serious Islamist hate preachers have "studied in Saudi Arabia as part of scholarship programmes".
In a statement to the BBC, the Saudi embassy in London said the claims were "categorically false".
"We do not and will not condone the actions or ideology of violent extremism and we will not rest until these deviants and their organisations are destroyed," it added.
The Henry Jackson Society called for the creation of new laws requiring mosques and other Islamic institutions to declare foreign funding.
It also demanded the launch of a public inquiry into foreign funding of extremism, putting pressure on the government which has so far refused to publish its own report into foreign funding of terrorism.
Under the strict version of the Islamic faith in Saudi Arabia, women are forbidden from driving, there is no intermingling of the sexes, and cinemas and alcohol are banned, while the militant preaching associated with Wahhabi thought is accused of inspiring extremists from Osama bin Laden to the Islamic State group.
The oil-rich kingdom is Britain's largest trading partner in the Middle East, with exports of more than £6.5 billion ($8.4 billion, 7.4 billion euros) in British goods and services to the country in 2015.