The Open Society Institute, a private foundation set up by financier George Soros, said many Muslims experienced discrimination as well as social and economic disadvantages.
But it said most Muslims still wanted to live in communities that are ethnically and religiously mixed, rather than segregated areas.
The institute said it conducted some 2,000 interviews in 11 cities across Europe, including Amsterdam, Berlin, Paris and London, for the survey.
"The alarming part that we highlighted was just the report that we had from our research on the levels of religious discrimination," Tufyal Choudhury, the lead author of the overview report, told RFE/RL's Tajik Service. "Around half the respondents that we traced across the 11 cities who were Muslims said they had experienced some form of religious discrimination in the previous 12 months, and then they were asked to think about whether discrimination had increased over the past five years -- the majority both Muslims and non-Muslims that we spoke to felt that religious discrimination had increased over the past five years. I think that was the alarming part."
Choudhury said Muslims also often faced discrimination on grounds of ethnicity.
"It shows that over the past five years, particularly with issues like security, discrimination and prejudice toward Muslims has increased. That's what people have been reporting to us," he said.
The OSI estimates between 15 million and 20 million Muslims live in the European Union.