Computer scientists at the University of Cambridge carried out the cybercrime study after being approached by the UK’s Ministry of Defence.
The report indicated that the UK was spending almost £640m annually on the problem.
It said less than £10m of that sum was spent on cybercrime law enforcement.
The team worked with colleagues in Germany, the Netherlands, the USA and UK to compile the study. They considered all the main types of cybercrime, including online payment and banking fraud.
Lead author Prof Ross Anderson also told the BBC that less government money should be spent on monitoring phone and internet communications.
He said that police in the UK were often months behind and too focussed on surveillance, because resources had been misallocated.
“Some police forces believe the problem is too large to tackle,” he said.
“In fact, a small number of gangs lie behind many incidents and locking them up would be far more effective than telling the public to fit an anti-phishing toolbar or purchase anti-virus software. Cybercrooks impose disproportionate costs on society.”
According to Prof Anderson it is mainly the US government – and the FBI in particular – that carry out the “heavy lifting” when it comes to pursuing cybercrime.
“Cybercrime has created a swamp,” he added. “You need to drain the swamp by arresting people.”
A Cabinet Office spokesman welcomed the report and said that the government believed the threat was serious and needed to be tackled.
“Our approach strikes the right balance between defending our interests and pursuing cybercriminals” he said.
The Cabinet Office pointed to extra investment of £650m over four years to fund more cyber-specialists in police forces across the country.
Prof Anderson also recommended improving consumer protection legislation for victims of credit card fraud.
He said that the fear of fraud by businesses and consumers was leading some to avoid online transactions, imposing an indirect cost on the economy.
He noted that consumers in countries like the Netherlands, Finland and Ireland enjoyed much stronger protection.