Drawing on interviews with 33 people seeking asylum, it highlighted the 'in limbo' legal status faced by many - and the detrimental effect this has on mental health.
A parliamentary motion on asylum seeker policy, moved by backbencher Laura Smyth, was lost on Tuesday.
It called for an independent assessment of the mental and physical health of asylum seekers in offshore detention as well as new guidelines for the government's "no advantage" principle.
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The principle, which came into effect last August, ensures that anyone arriving after that time is not processed any faster than those who stay for years in overseas refugee camps.
The principle has resulted in long delays for processing of those who have arrived since it came into place.
In its report, the Red Cross used a series of strongly-worded headings to portray its findings.
The group said it was issuing "a plea to our national parliamentarians not to turn their back on suffering".
The group said it found that long delays in processing and limited opportunities for 'meaningful participation' in the community exacerbate mental distress.
"With no decision, I am in a world of uncertainty….I find myself lost here…I am suspended. I feel mentally down", it cited one asylum seeker as saying.
The report also found that many asylum seekers have a real difficulty in accessing legal support, and that poverty is a reality for many.
The withdrawal of support payments before an individual's legal entitlement to appeal is exhausted also results in vulnerability, it said.
For many, the lack of a right to work compounds the issue, the Red Cross found.
"We are just sitting on the balcony….waiting", one individual said.
"While the Red Cross strongly welcomes the laudable release of people seeking asylum from immigration detention centres and believes that this is the best, most humane and sustainable approach, we urge our political leaders to take the next humanitarian step to better support them in the community," said Robert Tickner, CEO Australian Red Cross.
SBS has contacted the Department of Immigration and Citizenship for comment.
Writing in The Conversation today, Harry Minas, the Director of the Centre for International Mental Health at the University of Melboune called on the government to 'take charge' of asylum seekers' health.
"The negative health and settlement consequences for asylum seekers will be long-term and the costs to the community – in terms of continuing need for health services and prolonged disability – will be substantial, "he said.
"Unlike our response to refugees, our response to boat arrivals is not an illustration of Australia at its best".
Immigration Minister Brendan O'Connor spoke against Tuesday's motion on the no advantage test.
