Inquiry chair Brian Langstaff said more than 30,000 people received infected blood and blood products in the 1970s and 1980s from Britain's state-funded National Health Service, destroying lives, dreams and families.
The government hid the truth to "save face and to save expense", he said, adding that the cover-up was "more subtle, more pervasive and more chilling in its implications" than any orchestrated conspiracy plot.
Prime Minister Rishi Sunak said it was "a day of shame for the British state".
"The result of this inquiry should shake our nation to its core," he said, adding that ministers and institutions had failed in the most "harrowing and devastating way".
"I want to make a wholehearted unequivocal apology for this terrible injustice," he told parliament and promised full compensation to those affected.
The families of victims and survivors had sought justice for years and Langstaff, who led a six-year inquiry, said the scale of what happened was both horrifying and astonishing.
In some cases, blood products made from donations from US prisoners or other high-risk groups paid to donate were used on children, infecting them with HIV or hepatitis C, long after the risks were known.
Other victims were used in medical trials without their knowledge or consent. Those who contracted HIV were often shunned by their communities.
"This disaster was not an accident," said Langstaff to a standing ovation from campaigners.
"The infections happened because those in authority - doctors, the blood services and successive governments - did not put patient safety first."
Stephen Lawrence received blood after he was knocked down by a police car in London in 1985. Two years later, he was diagnosed with HIV and Hepatitis C at the age of 15.
"I was accused of being on drugs, drinking, all that," he told Reuters, adding that he had not been compensated because his records had gone missing.
"It's about justice. I've been struggling with this for 37 years."
The use of infected blood has resulted in thousands of victims in the United States, France, Canada and other countries.
The British government agreed in 2022 to make an interim payment of 100,000 pounds to some of those affected.
Clive Smith, chair of the Haemophilia Society, said the scandal had rocked faith in the medical establishment.Â
"(It) really challenges the trust that we put in people to look after us, to do their best and to protect us," he told reporters.
Infected blood and blood products were used for transfusions, which were not always clinically needed, and as treatments for bleeding disorders like haemophilia.
Haemophiliacs received Factor 8 concentrates from the United States which carried a particularly high risk.
Some of the concentrates carried the HIV virus, the inquiry said, but authorities failed to switch to safer alternatives and they decided in July 1983, a year after risks were apparent, not to suspend their importation.
Systemic failures resulted in between 80 and 100 people becoming infected with HIV by transfusion, the inquiry found, and about 26,800 were infected with Hepatitis C, often from receiving blood after childbirth or an operation.
Both groups were failed by doctors' complacency about Hepatitis C and their slowness to respond to the risks of AIDS, it said, compounded by an absence of meaningful apology or redress.
"It will be astonishing to anyone who reads this report that these events could have happened in the UK," Langstaff said.
