Some secondary school teachers were guilty of "significantly" over-marking pupils' GCSE English work in a bid to boost results, Ofqual said.
The GCSE exam for children in England is to be replaced by an English Baccalaureate Certificate with the first courses to begin in 2015.
Education Secretary Michael Gove is to unveil details of a major overhaul of GCSE exams marking a return in part to the old O-level system.
Ofsted have warned that many of England's most able pupils are being failed by a culture of low expectations.
The report found that in non-selective schools, 65 per cent of pupils who achieved top levels in English and Maths in primary school did not gain an A or A* at GCSE.
The education watchdog called on schools to do more to challenge the minds of the brightest pupils and to consider streaming pupils when they first start secondary school.
ITV News reporter Martha Fairlie reports:
The National Union of Teachers have labelled the evidence behind Ofsted's claims that schools are failing the most academically able as "wrong".
Christine Blower, the General Secretary of the largest teachers' union, said the evidence supporting the claims was "wrong" because Key Stage two test results were never designed as a predictor for future GCSE grades.
The General secretary said young people's aspirations had been deeply harmed by the reduction in the Education Maintenance Allowance, the increase in tuition fees and cuts to schools' career services.
"While schools are never complacent it has to be remembered that Ofsted’s own Annual Report found that 70% of all schools are now good or better. Ofsted has a role to support schools and ensure they are sharing best practice in schools. This report does neither.
"For schools to help and encourage all pupils to reach their full potential we need a curriculum which engages students and is relevant to all the career paths available to young people in the modern workplace".
The Department for Education has called on secondary schools to ensure all pupils fulfil their potential, but insisted the government are making changes to enable students to achieve academically.
– Department for Education spokesman
Sir Michael is right - secondary schools must ensure all their pupils, including their brightest, fulfil their potential.
That's why we are introducing a more demanding and rigorous curriculum, toughening up GCSEs and getting universities involved in A-levels.
The government must provide funding to enable the brightest students to fulfill their potential, according to a leading education charity.
Reacting to a report which suggests the brightest students are being 'let down' by a culture of low expectations, the Sutton Trust, which aims to improve social mobility through education, has warned that the government along with schools need to play their part in improving provisions.
Sir Peter Lampl, chairman of the Sutton Trust said:
"Schools must improve their provision, as Ofsted recommends. But the Government should play its part too by providing funding to trial the most effective ways to enable our brightest young people to fulfil their potential.
"Enabling able students to fulfil their potential goes right to the heart of social mobility, basic fairness and economic efficiency."
– Ofsted's chief Inspector Sir Michael Wilshaw
Too many non-selective schools are failing to nurture scholasticexcellence. While the best of these schools provide excellent opportunities,many of our most able students receive mediocre provision.
Put simply, they are not doing well enough because theirsecondary schools fail to challenge and support them sufficiently from thebeginning.
- Last year nearly two-thirds (65%) around 65,000 students, gained a Level 5 in English and Maths in national curriculum tests but did not get an A* or A grade in these subjects at GCSE.
- Just over a quarter of these students, around 27,000, did not get a grade B in English and maths at GCSE.
- Last year, in a fifth of the 1,649 11 to 18-year-olds not one student gained a minimum of two A grades and a B in at least two subjects preferred by leading Russell Group universities.
A culture of low expectations in many schools has meant that bright pupils are being let down and are failing to gain top grades at GCSE, according to a new Ofsted report.
The report suggests that clever students become used to performing at a lower level because they are in classes where the work is pitched at middle-ranking students.
Chief inspector Sir Michael Wilshaw said it was "shocking" that, in some cases, school leaders and teachers did not even know who their most able children were.
Children born in the summer months should have lower pass marks than their older classmates, according to a new report.
The Institute for Fiscal Studies (IFS) calls for GCSEs and primary school tests to be "age-adjusted" to ensure "that those born at the end of the academic year are not disadvantaged by taking the tests younger".
Children born in August are 6.4 percentage points less likely to achieve at least five Cs at GCSE, according to the IFS.
Pupils are also two percentage points less likely to go to university when they leave school.
The publication of the report comes amidst growing concern that children born at the end of the academic year achieve less than older classmates.
The IFS is calling on ministers to take action to deal with the effects of the differences.
Ellen Greaves, research economist at the IFS and one of the report authors, said: "Age-adjusting the cut-offs required for pupils to achieve particular grades would ensure that no child is prevented from going on to further or higher education simply because of the month in which they were born."
Controversial plans by Education Secretary Michael Gove to hive off AS-levels as a stand-alone qualification would be ditched by a Labour government, shadow schools minister Kevin Brennan said today.
In a letter to the exams regulator Ofqual, Mr Brennan said Labour had concerns it would damage attempts to encourage poorer students to go to university, and narrow choice for teenagers considering their futures.
If Labour were to win the general election in 2015, they would not go ahead with the move to decouple AS-levels from A-levels, he said.
The proposal, set out by Mr Gove in January, is due to be introduced in September 2015. If Labour were to take office in May that year, it would mean a last-minute overhaul of the A-level system to halt the change before the autumn.
Students will only be able to sit their A-levels in the summer after regulator Ofqual scrapped January exams, according to the Independent newspaper.
The move is reportedly designed to prevent pupils re-sitting exams to obtain higher marks - a culture critics say has led to grade inflation and a devaluing of the exam system.