Lord Justice Leveson has called for legislation in the UK to underpin a "genuinely independent and effective system of self-regulation" for the press.
He said the press had "wreaked havoc with the lives of innocent people".
In his report on press standards and ethics, he said legislation would provide "an independent process to recognise the new self-regulatory body and reassure the public that the basic requirements of independence and effectiveness were met".
The judge said the press had ignored its own code of conduct and there had been a "recklessness in prioritising sensational stories" irrespective of the harm that may be caused.
He said politicians of all parties had developed "too close a relationship with the press in a way which has not been in the public interest".
His findings are based on months of dramatic evidence about the phone-hacking scandal from victims, media figures, politicians and the police.
In a damning report, the judge said the press had repeatedly acted as if its own code of conduct "simply did not exist", and "wreaked havoc with the lives of innocent people".
He proposed expanding Ofcom's legal remit so it became a "verification" body, able to recognise an independent regulator that had "credible" rules and powers to enforce them - such as huge fines.
Publications would not be obliged to sign up to the new body but would be subject to harsher punishment if the courts found they libelled people or breached civil law.
Lord Leveson also warned that turning Ofcom into a "backstop" regulator was an option if the industry refused to co-operate with his scheme.
The suggestions - in a detailed 2,000-page report that also heavily criticised politicians for becoming too cosy with the media - leave Prime Minister David Cameron with a major headache as he seeks to forge cross-party consensus.
Deputy Prime Minister Nick Clegg will make an unprecedented separate statement to the House of Commons after Mr Cameron responds to the Leveson Report this afternoon.
The Liberal Democrat leader is understood to favour statutory underpinning, while the Prime Minister is believed to be more wary of involving the state in policing newspapers.
Downing Street and Liberal Democrat sources sought to play down the significance of separate statements.
However the failure to agree on a single message suggests it will be much more difficult to achieve cross-party consensus on Leveson, which both Mr Cameron and Labour leader Ed Miliband backed at Prime Minister's Questions in the Commons yesterday.
Victims of press intrusion gave evidence at inquiry
In July 2011, it was reported that employees of Rupert Murdoch's News of the World tabloid had hacked into Milly Dowler's telephone while police were still searching for her, giving her parents false hope that she was alive.
Her mother, Sally Dowler, told the inquiry that when she could again leave a message on her missing daughter's phone, she shouted: "She's picked up the voice mails! ... She's alive!"
Outrage over this case prompted Prime Minister David Cameron to commission the Leveson inquiry.
The inquiry also investigated press coverage following the disappearance of Madeleine McCann during a family holiday in Portugal in 2007.
Kate and Gerry McCann said newspapers were sympathetic at first but coverage later turned hostile.
One story said the couple had sold their daughter into slavery, another that they had killed her and hid her body in a freezer.
The couple successfully sued several British newspapers over suggestions that they had caused their daughter's death and then covered it up.
Mrs McCann described her dismay when extracts from her private diary - in which she wrote to her missing daughter - appeared in the News of the World in 2008.
"I felt totally violated," she said. "There was absolutely no respect shown to me as a grieving mother or as a human being, or to my daughter."
Actor Hugh Grant testified that since "Four Weddings and a Funeral" made him a movie star, details of his hospital visits had been leaked, his garbage was rifled through, his ex-girlfriend and his infant daughter harassed.
He said an article earlier this year in The Sun and the Daily Express about his visit to a hospital emergency room was a gross intrusion of privacy.
"I think no one would expect their medical records to be made public or to be appropriated by newspapers for commercial profit. That is fundamental to our British sense of decency," he said.
Other people targeted included J K Rowling, Charlotte Church, and Charlotte Harris.
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