A total of 898,000 sanctions were applied to claims for Jobseeker's Allowance (jsa) and Employment Support Allowance during 2013, according to Citizens Advice Scotland, 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 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 said 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.
Meanwhile, 97% of advisers said people reported going without gas or electricity, or skipping meals, after being sanctioned, with 94% saying people were requesting food parcels.
The Citizens Advice Scotland report said: "The rate of Job- seeker's Allowance sanctions has more than doubled since 2010."
It added: "Towards the end of 2012 the penalties associated with sanctions also became significantly more severe. The first level JSA sanction has risen from one week to one month, and the maximum duration of a sanction rose from six months to three years.
"The result of being sanctioned is claimants have no money for food, heating or other living essentials. For some this is putting tenancies and debt repayment arrangements at risk as well. This is causing extreme stress for some claimants.
"Overall, we believe the purpose and functioning of the sanctions regime needs publicly reviewed."
In the survey, 60% of Citizens Advice Bureau advisers reported people had not been told they were being sanctioned before their benefits money being cut.
In addition, 97% of advisers said they had seen cases where penalties had been applied without taking into account reasons people had for not complying with benefit requirements.
Citizens Advice Scotland (CAS) is calling for the sanctions system to be changed to ensure people only lose a proportion of their benefits, rather than the entire amount, saying: "At the very least people should be able to eat and heat their homes."
It is also urging the Department for Work and Pensions (DWP) to ensure people are informed in writing when sanctions are being considered and are put in place, with the advice charity saying there should be at least 10 working days' notice before a sanction is applied.
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."
A DWP spokesman said: "Every day, Jobcentre Plus advisers are successfully helping people off benefits and into work. In the last year alone, employment in Scotland is up 48,000.
"Sanctions are only used as a last resort, but it is only right that people claiming benefits should do everything they can to find work, if they are able. We make it clear to people at the start of their claim what the rules are and they risk losing their benefits if they do not play by them.
"People who are in genuine need can apply for hardship payments. If someone disagrees with a decision made on their claim, they can appeal."