The Government has been urged to scrap Jobcentre Plus and replace it with a new service working closer with private firms to help get people back to work.
The Policy Exchange think-tank said the agency tasked with helping the unemployed was acting more like a benefit office than a support service.
A report argued that the Government was wasting billions of pounds and letting down those out of work by failing to diagnose claimants' underlying problems.
The think-tank recommended replacing Jobcentre Plus with a smaller organisation called CommunityLink, which would concentrate on helping the unemployed find long-term employment, rather than handing out benefits.
Matthew Oakley, co-author of the report, said: "The current system of employment support is both unfair and ineffective. It is letting unemployed people down as Jobcentres don't provide a personalised service.
"This means that some claimants with significant barriers to work are left without support for up to 12 months before being given effective employment support. This is costly to both the state and to the individuals involved.
"It wouldn't be efficient to spend money on welfare-to-work schemes for all claimants. But if we target support better, then we can afford more help for those who need it, and avoid wasting money on those who don't. This will reduce average times on benefit, save money and help reduce unemployment and poverty."
The report, published in the same week as a big increase in unemployment was announced, said the provision of employment services should be removed completely from the public sector.
Until the new system was in place, Jobcentre Plus should be split into two distinct roles, covering claims and employment support, said Policy Exchange.
A Department for Work and Pensions spokesman said: "We have already made changes to Jobcentre Plus so that advisers can tailor their support and advice to the needs of each jobseeker. Everyone gets regular face-to-face meetings with an adviser and the opportunity to take advantage of a range of extra support such as training, work experience or volunteering so that they can further develop their skills and get back into employment quickly."