The Commons foreign affairs committee said London was being used to hide the “corrupt assets” of President Vladimir Putin and his allies.
It said it was “business as usual” for the UK despite the poisoning of Russian ex-spy Sergei Skripal and his daughter.
This undermined the UK’s efforts to confront the full spectrum of President Putin’s offensive measures, it said.
The UK’s “lethargic response is being taken as proof that we don’t dare stop them… London’s markets are enabling the Kremlin’s efforts,” committee chairman and Conservative MP Tom Tugendhat wrote in the Sunday Times, ahead of the publication of the report.
Security and economic crime minister Ben Wallace said he had not been called to give evidence to the committee: “I fear such an omission weakens the foundation of the report,” he said.
Mr Wallace said the UK was “determined to drive dirty money and the money launderers out”.
“[We] will use all the powers we have, including the new powers in the Criminal Finance Act, to clamp down on those that threaten our security,” he added.
Mr Tungendhat said ministers should investigate “gaps” in the sanctions regime which allows the Russian government and individuals linked to President Putin to continue to raise funds in the City.
The report, named Moscow’s Gold: Russian Corruption in the UK, points out that Russian gas giant Gazprom was able to trade bonds in London “days after the attempted murders” of Mr Skripal and his daughter.
That business between the UK and Russia had resumed so swiftly prompted the Russian embassy in London to tweet: “Business as usual?”
“The scale of damage that this ‘dirty money’ can do to UK foreign policy interests dwarfs the benefit of Russian transactions in the City.
“The UK must be clear that the corruption stemming from the Kremlin is no longer welcome in our markets and we will act,” said Mr Tugendhat.
Andrey Kortunov is director general of the Russian International Affairs Council a think tank funded by the Russian state.
“I don’t think we can argue that most of the Russian money which is parked in London is used to serve the interests of Russian foreign policy,” he said.
“There are very different people, their stories are diverse and some of them are very strong opponents of the Russian leadership.”
The committee’s report urges the government to show “stronger political leadership” on the issue by taking a number of actions, including:
- Further sanctions against “Kremlin-connected individuals”
- Closing loopholes in the existing sanctions regime
- Speeding up plans to disclose transparent corporate ownership