Prevent is a UK government scheme that uses early intervention to try to stop people from becoming radicalised.
The report said the policy was "inconsistent with the principle of the rule of law".
The Home Office said the report makes "a series of assertions that are simply not true".
Home Secretary Amber Rudd set out plans to improve and strengthen Prevent in the wake of last month's Manchester terror attack.
She suggested more money would be spent on the strategy to make sure "it has even more effective outcomes in communities to protect us".
She said Prevent had helped stop 150 people - including 50 children - from leaving Britain to fight in Syria in the last year.
Prevent, which was set up in 2006 by Labour, is meant to protect individuals thought to be at risk of being radicalised has been criticised for demonising Muslim communities and deterring people from sharing information with police.
The report by the UN Special Rapporteur on the rights to freedom of peaceful assembly and of association in the UK, first published in May, was highly critical of Prevent, UK counter-terror legislation, the impact of lobbying laws on charities, and trade union laws.
The author of the report, Kenyan human rights specialist Maina Kiai, said unclear Prevent guidelines gave decision makers "excessive discretion", which rendered the application of the policy "unpredictable and potentially arbitrary".
This, he said, risked "dividing, stigmatizing and alienating segments of the population".
Legislation covering political lobbying also came in for criticism for having a chilling effect on charities.
Commonly known as the Lobbying Act, the laws were described as having a disproportionate effect upon civil society and trade unions compared to business interests.
This was, the report said, because the actions of in-house lobbyists, who generally work for these business interests, were not restricted by part one of the Act.
The report also criticises the implementation of counter-terrorism policies.
It said that the Investigatory Powers Act, which increased government powers to intercept private communications, "contained procedures without adequate oversight, coupled with overly broad definitions, which might result in unduly interfering with the right to privacy, the right to freedom of opinion and expression and the right to freedom of association."
It criticised the planned Counter Extremism and Safeguarding Bill, which would allow clamp downs on non-violent extremist groups, as unnecessary, saying it could leave people "fearful of exercising their rights" and could end up proving counterproductive.
Balloting restrictions on public service trade unions to force higher turnout before industrial action could be taken, introduced under the Trade Union Act, were labelled as "profoundly undemocratic".
A Home Office spokesperson said: "It was disappointing to see a report make a series of assertions that are simply not true.
"Prevent is vital and necessary to stop the threat of terrorism, whether Islamist or Far Right.
"To say that the strategy creates extremists is an outrageous claim with no evidence."
"Following the tragic events in London and Manchester, it is more important than ever that we focus on the real causes of terrorism, which continues to be vulnerable people being exploited by recruiters spouting the poisonous ideologies of groups such as Daesh."
Liberal Democrat MP Alistair Carmichael said:  "This report is right, Theresa May's Prevent strategy has become discredited and must now be replaced."
"As we have seen with recent terrorist attacks, local communities alerted the authorities about suspicious individuals but their warnings were ignored."
"We need a new approach, working closely with communities to root out extremism and investing in local policing and intelligence-gathering."
President of the National Union of Students, Malia Bouattia, said: "We welcome this report as yet another confirmation that the Prevent agenda is seriously flawed and undermines people's civil liberties.
"NUS and others have long maintained that the Prevent strategy is not only damaging to those it targets but that it is completely ineffective as a counter-terrorism strategy.
"Unclear guidelines result in over-zealous and misinformed staff reporting everyone from PhD students studying counter-terrorism to four year old children."
Greenpeace UK's executive director John Sauven said: "The Lobbying Act has done nothing to curb the influence of corporate lobbies over our political system, but has frightened charities supported by millions of people into silence.
"Ministers should listen to the UN and to their own experts and use the Queen's Speech to repeal or reform this charity-gagging law."
A UN Human Rights Council report has criticised the Prevent counter-terror strategy as "inherently flawed."