The funding has primarily "taken the form of endowments to mosques and Islamic educational institutions," which in turn host extremist preachers and distribute extremist literature.
"A number of Britain's most serious Islamist hate preachers sit within the Salafi-Wahhabi ideology and are linked to extremism sponsored from overseas, either by having studied in Saudi Arabia as part of scholarship programs, or by having been provided with extreme literature and material within the UK itself."
Over the past 30 years, Saudi Arabia has spent at least £67 billion ($87 billion) on its global campaign to promote Wahhabi Islam, the report said.
The Saudi embassy in London called the claims "categorically false."
"It feels like there's a lot more scrutiny of the UK's relationship with Saudi Arabia, but there's definitely also a lot more scrutiny that is needed," Smith said.
"If the Saudi government is in any way aiding, supporting or willingly ignoring those that are promoting violence, that are connected to violent groups or terrorism, that is something people in the UK have every right to know."
The Henry Jackson report comes as the UK government is under pressure to publish its own report into foreign funding and support of jihadist organizations, which was authorized by former Prime Minister David Cameron in 2015 in return for Liberal Democrat support for the extension of British airstrikes against Daesh in 2015.
"It seems like it's being sat on because it's potentially very embarrassing, and I expect that the information in there is going to be very embarrassing to Saudi Arabia and potentially to some other regimes in the Gulf States as well," Smith said.
"This is ultimately why it needs to published, which is that the UK does enjoy some very close political and military relationships with regimes which have been linked to this bed of violence and that's something that really needs to be taken on and needs to be examined in the closest detail."
Saudi Arabia launched a military intervention in Yemen in March 2015, after the ouster of President Abdrabbuh Mansur Hadi by Houthi rebels. Since the beginning of the intervention, more than 10,000 civilians have died in the country, an estimated two million children are starving and over 200,000 people have been infected with cholera in the world's worst outbreak.
"One child is dying every ten minutes from preventable causes. The death toll is growing every day and yet the UK has been complicit in this destruction for two years now. In the time since the bombing began, the UK has licensed £3 billion ($3.9 billion) pounds worth of weapons to the Saudi regime."
"Right now, UK-made fighter jets are being flown by UK-trained military personnel and dropping UK-made bombs. The UK cannot be any more complicit in this."
"Even while Qatar and Saudi Arabia are in political conflict with one another, the UK is selling arms to both of them. The UK has sold £140 million ($181 million) of weapons to Qatar in the last two years, just as it has sold billions of pounds worth of arms to Saudi Arabia."
"For far too long, the UK has looked the other way while close military allies in the Gulf have abused the human rights not just of people living in their state, but also of neighboring countries. We're seeing that with Saudi Arabia and Yemen right now. The UK has been complicit in the repression of Saudi people for decades and now it's complicit in the destruction of Yemen."