Prime Minister Viktor Orban, recently re-elected for a third straight term with a huge majority, has made stopping the entry of migrants and refugees a central plank of government policy.
The report, based on a recent visit to the two facilities on the border with Serbia, said "the ability to detect potential victims of human trafficking... has worsened" as a result of tighter laws and measures on immigration and asylum.
It was written by the Council's Group of Experts on Action against Trafficking in Human Beings (GRETA), which oversees the implementation of the Council's convention against human trafficking.
Staff in the transit zones could not explain procedures for identifying trafficking victims, the authors said.
They said asylum seekers were detained in "cramped living quarters, surrounded by barbed wire" and under the surveillance of armed guards.
GRETA also said it was "deeply concerned that children aged 14-17 years are particularly vulnerable because they are treated as adults".
There were 79 cases of "collective expulsion" of irregular migrants to Serbia in less than two weeks alone in December 2017, it said.
The Hungarian government rejected the description of the zones as "closed facilities", saying asylum seekers were "free to leave in the direction of Serbia at any time".
The interior ministry also said reports of "collective expulsions" were "unfounded".
In 2015, when more than one million people landed on Europe's shores, over 400,000 refugees and migrants crossed through Hungary, mostly en route to other countries.
Last year the country received just 3,397 applications for asylum, of which just over a third were given either refugee or "subsidiary protection" status.
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