The study, presented to the European parliament, says Eritrean and Sudanese security officers are colluding with the kidnap gangs.
At least $600m (£366m) has been extorted from families in ransom payments, it says.
Victims are kidnapped in Ethiopia, Sudan and Eritrea and taken to Sinai.
Eritrea has denied its officials are involved in the kidnappings.
Most of those targeted are Eritrean refugees fleeing the country, says the report - The Human Trafficking
Almost every Eritrean knows somebody who has been held hostage”, says Meron Estefanos, rights activist.
Meron Estefanos Rights activist
"[The victims] are then taken to the Sinai and sold, sometimes more than once, to Bedouin groups living in the Sinai."
The report was authored by Meron Estefanos, an Eritrean human rights activist in Sweden, and Prof Mirjam van Reisen and Dr Conny Rijken of Tilburg University in the Netherlands.
The report says Eritrea's Border Surveillance Unit (BSU) and Sudanese security officials are among the "actors" colluding with the gangs that hold people hostage in the the largely lawless Sinai.
"[The hostages] are chained together without toilets or washing facilities and dehydrated, starved and deprived of sleep," the report says.
"They are subject to threats of death and organ harvesting... Those who attempt to escape are severely tortured."
This is hardly believable, and yet, there is no limit to man's cruelty to man, or woman, or child.
The cousin was abducted in Sudan, before being taken to Sinai where her captors tortured and raped her, Ms Meron said.
"Almost every Eritrean knows somebody who has been held hostage. It's a very common thing," she told the BBC.
The report said the trafficking would have been impossible without the direct involvement of Eritrean security officials, given the "restrictions on movement within the country, the requirement of exit visas at the border and the shoot-to-kill policy for illegal border crossings".
However, Eritrea's UK ambassador, Tesfamichael Gerahtu, said Eritrea was a "victim of human trafficking".
The government was "working hard" to arrest and bring to justice criminal gangs operating along its border, he told Focus on Africa.
The UN estimates that 3,000 Eritreans fled their repressive and impoverished country each month last year.
Many headed for the swollen refugee camps of neighbouring eastern Sudan, now home to more than 90,000 people.