The report by the London School of Economics (LSE), based on interviews with nine Taliban commanders in Afghanistan between February and May this year, says the support for the Afghan Taliban was "official ISI policy".
"Although the Taliban has a strong endogenous impetus, according to Taliban commanders the ISI orchestrates, sustains and strongly influences the movement," Matt Waldman, author of the report who is also a fellow at Harvard University, says.
Taliban field commanders interviewed for the report suggested that ISI intelligence agents even attend Taliban supreme council meetings. "Some alleged that ISI agents had even attended meetings of the Taliban's top leadership council, the so- called Quetta shura. They claim that by backing the insurgents Pakistan's security service is trying to undermine Indian influence in Afghanistan," BBC quoted the report as saying.
India is carrying out a number of developmental projects in Afghanistan and Pakistan views New Delhi's involvement in reconstruction activities there undermines its influence.
India's assets in the war-torn country have been targeted several times and the Indian Embassy in Kabul was attacked twice. However, India has made it clear that it will continue with its activities.
Waldman says there is real evidence of extensive co-operation between the ISI and Taliban. He also argues that previous studies significantly "underestimated" the influence that Pakistan's ISI exerts over the Taliban.
Far from being the work of rogue elements, interviews suggest this "support is official ISI policy", he said. "The report is consistent with Pakistan's political history in which civilian leaders actively backed 'jihadi' groups that operate in Afghanistan and Kashmir," Waldman said.
Pakistani support for the Taliban is prolonging a conflict that has cost the West billions of dollars and hundreds of lives, the report said, noting that last week 32 NATO soldiers were killed.
"As the provider of sanctuary and substantial financial, military and logistical support to the insurgency, the ISI appears to have strong strategic and operational influence - reinforced by coercion.
"There is thus a strong case that the ISI orchestrates, sustains and shapes the overall insurgent campaign," the report says. However, a Pakistani Government spokesman told BBC that the allegations were "rubbish" and part of a malicious campaign against the country's military and security agencies.