Lord Justice Leveson said the press had "wreaked havoc in the lives of innocent people" for many decades.
He said the proposals in his report will protect the rights of victims and people bringing complaints.
Prime Minister David Cameron said he had "serious concerns and misgivings" over the idea of statutory regulation.
Speaking in the Commons he rejected the proposals for a new law to underpin press regulation on grounds of principle, practice and necessity.
Delivering his report, Lord Justice Leveson acknowledged that all of the press served the country "very well for the vast majority of the time," holding a privileged and powerful place as a defender of democracy and the public interest.
The prime minister set up the Leveson Inquiry in July 2011 after it emerged journalists working for the Sunday tabloid the News of the World had hacked the mobile phone of murdered Surrey schoolgirl Milly Dowler. The paper was subsequently shut down by its owners News International.
'Accountable press'Among Lord Justice Leveson's findings:
All of the press served the country "very well for the vast majority of the time"The press must create a new and tough regulator backed by legislation to ensure it was effectiveThis cannot be characterised as statutory regulationLegally-binding arbitration process needed to force newspapers to deal effectively with complaintsSome "troubling evidence" in relation to the actions of some police officers - but no proof of widespread corruptionOver last 30 years all political parties have had too close a relationship with the press which has not been in the public interestFormer Culture Secretary Jeremy Hunt was not biased in his handling of News Corp's BSkyB bid but failed to supervise his special adviser properlyIn his 2,000-page report, Appeal Court judge Lord Justice Leveson said the press had failed to properly regulate itself in the past, but he believed the law could be used to "validate" a new body.
Continue reading the main storyThe hearings, nearly nine months of them, were painful for politicians, police officers and the press.
The report, by contrast, is a difficult read for just one of these groups of individuals.
Jeremy Hunt, whose job was once under threat, is given a clean bill of health. There is no mention of David Cameron in the Executive Summary.
The former senior police officer, John Yates, is criticised - but the Metropolitan Police, the force that once employed him - escapes with its integrity not called into question.
But Britain's papers aren't so fortunate. Lord Justice Leveson describes the behaviour of some journalists as "outrageous".
To cure the ills he perceives, the senior judge has come up with a solution - an independent regulator backed-up by law.
Lord Justice Leveson's job is done.
The arguing and the debating has just begun.
Lord Justice Leveson said the legislation would enshrine, for the first time, a legal duty on the government to protect the freedom of the press.He rejected a proposal from the press itself to enforce standards through contracts, saying he could not see how it could be independent.
David Sherborne, a barrister for the victims of press intrusion, said they welcomed the contents of the report.
"In particular the clear recognition of widespread failings in the behaviour, ethics and standards of the press and the devastating consequences for victims," he said.
The chairman of the Press Complaints Commission, Lord Hunt, said the press had to seize the baton and make sure it "doesn't let Lord Justice Leveson down".
Deputy Prime Minister Nick Clegg is to make his own statement to MPs, having reportedly failed to agree a united government response with the prime minister on press regulation.
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