In its annual report, the Commission on International Religious Freedoms, a bipartisan advisory board appointed by the president and Congress, said the Myanmar government continues to persecute and discriminate Muslim groups.
The government's actions are despite its favorable moves toward establishing a more open and democratic society since the ending of more nearly 50 years of military rule with relatively free national elections in 2011.
"Ongoing and important political reforms in Burma (the former name of Myanmar) have yet to improve significantly the situation for freedom of religion and belief," the commission said.
The commission also questioned the official Myanmar government estimate of 192 people killed during sectarian violence in Arakan -- Rakhine -- state, saying the number was likely at least five times that.
In its 371-page report the commission said the secretary of State should "re-designate" eight countries as Countries of Particular Concern: Myanmar, China, Eritrea, Iran, North Korea, Saudi Arabia, Sudan and Uzbekistan.
The commission defines CPC states as "governments that have engaged in or tolerated particularly severe violations of religious freedom."
Particularly severe means there is evidence of the government engaging in "systematic, ongoing and egregious" violations including torture, prolonged detention without charge, disappearances, or other denials of the right to life, liberty and personal security.
The U.S. government should maintain existing sanctions and consider re-imposing lifted sanctions against Myanmar until the government meets international benchmarks for religious freedom, the commission said.
Of special concern is the situation of Christian civilians during military interventions in Kachin state and Muslims in Rakhine, the commission said.
The 800,000 Muslim Rohingya living as a minority Rakhine have been targeted by mobs of local Buddhist ethnic Arakanese in the past year.
More than 100,000 Rohingya have been displaced to security camps to live in dire conditions. Also, more than 1,000 have been killed in violence against Royhinga, many more than the government's estimate of around 190.
"Rohingya Muslims, who are denied Myanmarese citizenship, experience widespread discrimination, strict controls over their religious activities and ceremonies and societal violence that is often incited by Buddhist monks and carried out with impunity by mobs and local militias, including police," the commission said.
The U.S. report comes as a Myanmar government commission investigating violence in Rakhine recommended increasing government security, a report by the independent online newspaper Irrawaddy said.
The Myanmar government commission has recommended upholding the controversial 1982 Citizenship Law that excludes Rohingya from citizenship, essentially making them stateless, the Irrawaddy report said.
The U.S. commission's report is another blow for the Myanmar government of former military dictator President Thein Sein as he seeks international aid, foreign investment and the lifting of economic sanctions.
Last month the BBC broadcast what it claimed was a video of communal violence shot by Myanmar police and in which Buddhists killed at least two people.
Police were greatly outnumbered and stood back as Buddhist mobs, including monks, smashed and ransacked shops apparently owned by Muslims, the video's voice-over said.
The violence and beatings took place March 20-21 in the central Myanmar town of Meiktila.
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