More than a quarter of stop and searches were found to be unlawful during an inspection by the police watchdog into use of the controversial powers.
Her Majesty's Inspectorate of Constabulary (HMIC) warned of a "noticeable slippage" in attention given to the use of stop and search powers by senior officers since the 1999 Stephen Lawrence Inquiry.
After renewed concern about the way police use stop and search on the back of the 2011 riots, Home Secretary Theresa May ordered Her Majesty's Inspectorate of Constabulary (HMIC) to conduct its first ever inspection of the use of the powers in all 43 forces in England and Wales.
Around 27% of the 8,783 stop and search records examined did not include sufficient grounds to justify the lawful use of the power, the watchdog discovered. Police chiefs said the HMIC report makes "tough reading" for the service, while human rights campaigners called for an overhaul of the powers.
Elsewhere, the report found that less than half of forces complied with the requirements of the code to make arrangements for stop and search records to be scrutinised by the public. And half of forces did nothing to understand the impact on communities.
The inspection found that the majority of forces - 30 out of 43 - had not developed an understanding of how to use the powers of stop and search so that they are effective in preventing and detecting crime. Only seven forces recorded whether or not the item searched for was actually found, the study found.
HM Inspector of Constabulary Stephen Otter said: "Officers are not adhering to the guidance on too many occasions. It has slipped down the Chief Constables' agenda since the Stephen Lawrence Inquiry report." Mr Otter warned that use of the powers was becoming a "habitual" practice which was "part and parcel" of officers' activity on the streets.
Isabella Sankey, director of policy for Liberty, said: "Proper monitoring of the use of these invasive powers is essential - cutting crucial reporting requirements would only aggravate such shortcomings. Hopefully the Home Office will now heed the warnings and overhaul a measure that's more effective at alienating youngsters than fighting crime."
A Home Office spokeswoman said: "The Home Secretary is grateful for HMIC's report, which she commissioned in December 2011. She has made it very clear that the Government supports the ability of police officers to stop and search suspects within the law.
"But if stop and search is being used too much or with the wrong people, it is not just a waste of police time - it also serves to undermine public confidence in the police. That is why last week the Home Secretary announced a public consultation into the use of stop and search. The Government will respond to the HMIC report and the replies to the public consultation with specific proposals by the end of the year."