Boris Johnson's comparing women wearing face veils to "bank robbers" and "letterboxes" gave the impression the Tories are "insensitive to Muslim communities" an independent probe has found.
The investigation, led by Professor Swaran Singh concluded anti-Muslim sentiment is "still a problem" in the Conservative Party - finding evidence of racism at local and individual levels.
But it risked being branded a whitewash after concluding claims the party is "institutionally racist" were not borne out by evidence.
In a pointed message to Mr Johnson, the review led by Professor Swaran Singh said the leadership of the Conservative Party "ought to set a good example for appropriate behaviours and language".
Even in his response to the report, Mr Johnson failed to apologise for the comments - only apologising for "offence taken".
The Prime Minister was cleared after being accused of breaking party's code of conduct with a Daily Telegraph column in 2018 which described Muslim women who wear the burqa as looking like "letterboxes" and "bank robbers".
Mr Johnson said he was "sorry for any offence taken" over his journalism and told Prof Singh's investigation: "Would I use some of the offending language from my past writings today? Now that I am Prime Minister, I would not."
Tory Chair Amanda Milling said the party had accepted the conclusions of the report, and apologised "to anyone who has been hurt by discriminatory behaviour of others or failed by our system."
She added: "It is clear that there have been failings in our complaints process and we will begin work on implementing the recommendations set out by the investigation."
The Equalities and Human Rights Commission had said they would consider the outcome of this probe - promised by Mr Johnson during his leadership campaign - before deciding whether to launch its own probe.
An EHRC spokesperson said today: "We are pleased to see that the independent investigation has now published its report. We have been kept informed of the progress of the investigation by Professor Singh and will evaluate his team’s findings carefully.
“We will assess the report alongside the investigation’s terms of reference and await the Conservative Party’s response on the actions they will take. This process will take some time and we do not anticipate making any further comments until that work is completed.”
The Singh Investigation report said several interviewees who spoke to the inquiry considered Mr Johnson's language "discriminatory and unacceptable".
In response to Mr Johnson's assertion he would not make such remarks now, the report said: "While this could be considered leading by example, the investigation would like to emphasise that using measured and appropriate language should not be a requirement solely for senior people, but ought to be expected throughout the Conservative Party."
The investigation also examined the controversial and unsuccessful mayoral campaign Zac Goldsmith - now Lord Goldsmith of Richmond Park - ran in London against Sadiq Khan in 2016, during which he accused his Muslim Labour rival of associating with extremists.
The report said Lord Goldsmith "accepts poor judgement in the way his campaign was conducted but forcefully denies harbouring anti-Muslim sentiments or using such sentiments for political advantage".
The report said high-profile cases like Mr Johnson's and Lord Goldsmith's "give the impression to many that the Party and its leadership are insensitive to Muslim communities".
Prof Singh told PA: "I'm not saying that the party leadership is insensitive to Muslim communities. I'm saying that the perception is very strong."
The inquiry carried out by Prof Singh, a former commissioner at the Equality and Human Rights Commission, was established by the party following a series of allegations about Islamophobic behaviour in the party and was widened to consider all forms of discrimination.
From 2015-2020 the party's central database recorded 1,418 complaints relating to 727 incidents of alleged discrimination - an average of 237 complaints about 122 incidents a year in a party of 200,000 members.
More than two-thirds of the incidents - 496 cases - related to Islam and 74% of all the cases involved social media activity.
Around a third of cases - 231 - resulted in a sanction, with 50% resulting in a suspension and 29% an expulsion from the party.
No action was taken in 418 incidents for reasons including the complaint being in relation to someone who was not a party member, insufficient evidence or a prior investigation.
There was no evidence that complaints related to Islam are treated differently from those related to other forms of discrimination, nor did the panel find evidence of attempts to pressure or interfere with the handling of individual complaints.
But Prof Singh told PA the complaints process was "clunky, cumbersome and slow, and not transparent".
Former Tory chairwoman Baroness Warsi has accused the party of "institutional racism" and submitted a dossier of 30 cases to the inquiry.
The report said it carried out "in-depth scrutiny" of the cases provided by Lady Warsi but "we concluded that her allegation of 'institutional racism' against the party was not borne out by evidence available to the investigation as regards the way the party handled the complaints process".
But the report acknowledged that "anti-Muslim sentiment remains a problem" within the Conservative Party.
"While the party leadership claims a 'zero tolerance approach' to all forms of discrimination, our findings show that discriminatory behaviours occur, especially in relation to people of Islamic faith."
But the investigation did not find evidence of a party which "systematically discriminated against any particular group".
The review process has been regarded with scepticism by some critics, with the Muslim Council of Britain warning it would be a whitewash.
But Prof Singh said: "I hope fair minded people who read the report will see that we haven't shied away from criticising the party.
"In fact, this is going to be very uncomfortable for the party, I hope it makes them uncomfortable, I hope it makes the rank and file uncomfortable and it also spurs them into action."
In a message to Mr Johnson, Prof Singh said: "As the leader of the Conservative Party, I would say lead by example and accept our recommendations unequivocally. Accept them unconditionally. Implement them and get someone to monitor the implementation."
The report called on the Tories to introduce sweeping changes to the complaints process, publishing an action plan within six weeks to set out how it will respond, followed by a six-month progress report and a one-year review carried out by an appropriate body.
Within six weeks, the party should review its social media rules and within six months develop training on "acceptable" behaviour online.
Within a year, the report said the party should produce and implement a single, mandatory code of conduct across the entire membership in England, Wales and Northern Ireland.
