And 97% of Citizens Advice Scotland advisers said people reported going without gas or electricity, or skipping meals, after being sanctioned, with 94% saying people were requesting food parcels.
A total of 898,000 sanctions were applied to claims for jobseeker's allowance and employment support allowance during 2013, with 871,000 of the penalties being applied to claims for JSA.
The advice charity is now calling for urgent changes to be made to the system, which cuts payments if people fail to meet certain requirements such as not attending jobcentre meetings or not doing enough to find work.
One man in the east of Scotland had his benefits reduced to about £11 a week after sanctions were applied when he failed to attend an interview with a work programme, despite producing a doctor's certificate to say he had been diagnosed with terminal cancer and was not fit to travel, the report stated.
It also revealed that a survey of Citizens Advice Bureau advisers found 94% had seen an increase in people seeking help in the last two years because of benefit sanctions.
CAS chief executive Margaret Lynch said: "I hope this report will prove to be a stark warning about the changes that urgently need to be made to the sanctions regime, and show why CAS will continue to campaign for those changes on behalf of the citizens of Scotland.
"Being sanctioned means your benefit money is stopped. From a minimum of a week to as long as three years. That is the money that you live on.
"The money that you use to heat your home, feed and clothe yourself and your family, pay your bills, pay for travel, to get to the jobcentre and to look for work."