Under Brazil's 1988 constitution, the report now goes to the attorney-general for possible criminal proceedings against those accused. The document does not need to be put to a vote of the whole Congress.
The 22-member committee had been expected to approve the report but the 16-5 size of the government's defeat after a stormy debate came as a surprise. Several government supporters switched sides at the last minute.
Outside Congress, hundreds of young demonstrators waved banners calling for Mr Collor to resign in the latest of a series of mass protests that have shaken Brazil. Inside the building, a handful of pro-government legislators presented a dissenting report, saying Mr Collor was innocent. But their bid to shelve the damning final report failed hopelessly.
The parliament can now officially begin impeachment proceedings against the President. But the process could take months and would eventually depend on two-thirds of the Chamber of Deputies voting against the President. Until recently, Mr Collor was said to be confident of the support of more than one-third of deputies but that support is said to be dwindling as street protests against him grow.
President Collor, 43, has not appeared in public since the report was read out on Monday in a televised congressional session. In an Argentinian television interview on Tuesday night, he said the crisis was spiritually enriching. 'There is no reason to be worried,' he said. He is said to be in touch with clairvoyants in the hope of surviving.
The report's allegations include charges that Mr Collor's family and staff received cheques totalling millions of dollars in an influence-peddling scheme run by his close friend and former campaign treasurer, Paulo Cesar Farias.
The report said Mr Collor had 'on a permanent basis and during more than two years in office received improper financial benefit' from a corruption scheme run by Mr Farias. It listed cheques totalling millions of dollars, which it said were made out to Mr Collor's family, friends and staff for personal expenses and drawn on funds raised by Mr Farias from fraudulent schemes and influence-peddling.
The President's younger brother started the political storm by publicly airing allegations of misconduct.
Opposition groups were already working on a formal request to Congress for impeachment proceedings against Mr Collor, based on the report. The President's cabinet ministers have already distanced themselves from him in an attempt to keep the government functioning during the political crisis.
Government ministers signed a pledge not to resign but Celio Borja, the Justice Minister, warned this did not necessarily mean they would continue to support the President. 'What is persuading them to stay in their jobs (is) the service they give to the nation,' he said.Reuse content