It says that as a result of the illegal trade, national governments are losing up to €11.3bn in revenues and that 88 per cent of illegal cigarettes now come from non-EU countries.
The report claims that illicit cigarettes account for one in every 10 cigarettes consumed in Europe.
The study, which covers the 28 member states, as well as Switzerland and Norway, says that the illegal cigarette market in the EU accounts for around 10 per cent of total consumption.
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This volume, it points out, has actually declined marginally compared to 2014 as a result of "several factors", including increased activities to fight illegal trade and "improved economic conditions."
The tobacco industry argues that "strict supply chain controls" and shared intelligence, combined with authorities' law enforcement, has resulted in a decline of around 20 per cent in the illegal flow of cigarettes originating from within the EU.
One of the "key" trends identified in the report is the growing proportion of counterfeit and Illicit White brand flows compared to previous years.
Illicit Whites, say the report's authors, account for over one third of all illegal cigarettes, with the largest being with Belarusian labelling.
The industry has now called for more action to tackle the "adaptability" of criminals who profit from the illegal tobacco market.
Charlie Simpson, of KPMG, the company which authored the study, said, "Overall, levels of illicit cigarette consumption in the EU declined slightly during 2015. Despite this, illicit tobacco continues to represent a sizeable proportion of overall cigarette consumption.
"It's clear that the ever-evolving illegal tobacco market continues to affect countries throughout the EU. This year our research found that counterfeit and Illicit White brand flows made up a larger proportion of illicit consumption compared to previous years, which seems to demonstrate the flexibility of illicit cigarette flows."
The tobacco industry says there have been increased joint efforts by governments, law enforcement agencies, manufacturers and retailers in the past 12 months in addressing illegal cigarette flows in the EU.
But the report goes on to say, "As criminals increasingly concentrate on illegal products such as Illicit Whites and shift to new source countries outside the EU, it is clear that efforts to fight illegal trade must be maintained in order to disrupt criminal networks."