The report issued Tuesday by the Karen Human Rights Group says rights abuses are increasing as major infrastructure projects, partly funded by foreign aid, go forward in Karen state.
This area borders Thailand and is home to the ethnic-Karen people who have been fighting for greater autonomy from Burma's military rulers for 50 years.
The building of dams, roads, agricultural schemes, military plantations, educational and health projects involves the displacement of people, often into more easily controlled areas, and the use of forced labor, it says.
A founder of the Karen Human Rights Group, Kevin Heppner, accuses Burma's military of manipulating development programs to expand military control of villages in western Karen state.
He says foreign donors need to be aware of what is involved in projects run by Burma's ruling council, known as the State Peace and Development Council or SPDC.
"We have seen a general increase in human rights abuses of many kinds. A lot of these are related to the projects - not all tied to foreign aid. A lot of this is tied to SPDC controls - so it is forced relocations, garrison villages, and road building projects."
The report was based on interviews of villagers in late 2005 through to early 2007, and drew on interviews conducted by the group over the past 15 years.
The report's argument against funding major infrastructure projects conflicts with the view of many aid groups and diplomats who say that engagement with the Burmese government, however flawed, is better than nothing.
These groups say that a total boycott of aid or contact with Burmese officials will hurt communities in Burma, and that investment in economic development can bring benefits. The debate is controversial and aid agencies have reached different conclusions about whether to work in Burma.
Heppner says that when international donors provide millions of dollars in assistance there is a risk of corruption and a failure to benefit the local communities.
"There needs to be more honesty on the international level about what is really going on in Burma. More accountability and transparency and less willingness to just appease the regime in order to get some aid in there."
The Asian Highway project, for example, is backed by the United Nations and aims to link 14 countries. But the rights group claims it is being built with forced labor and that land is being confiscated without compensation.
Another concern is the building of several dams along the Salween River that runs along the Burma-Thai border. These are financed by China and Thailand, and could displace tens of thousands of villagers, the rights group warns.
A recent report by the U.S. General Accounting Office said conditions imposed by the Burmese regime have made it impossible for international aid agencies to carry out humanitarian work in Burma.
The Global Fund to fight Aids, Tuberculosis and Malaria and the International Committee of the Red Cross have left or reduced their work in Burma.