The Social Mobility Commission's annual report Social mobility in Great Britain: Fifth State of the Nation Report found that London and its surrounding areas pulling away from the rest of the country in terms of children's life chances, while many other parts of the country are being left behind economically.
Alan Milburn, chair of the Social Mobility Commission, said the UK is "in the grip of a self-reinforcing spiral of ever growing division" and calls on government to increase its proportion of spending on those parts of the country that most need it.
In addition to wanting every local authority to develop a strategy for improving disadvantaged children's outcomes, it has also called for pupil premium funds to be invested in evidence-based practice.
It also wants local authorities to support collaboration between isolated schools, subsidise transport for disadvantaged young people in isolated areas and encourage Local Enterprise Partnerships (LEP) to follow the North East LEP's approach to improving careers support for young people.
Meanwhile it recommends that central government launch a fund to enable schools in rural and coastal areas to partner with other schools to boost attainment.
The report found that London accounts for nearly two thirds of all "social mobility hotspots" - areas where life chances are better.
The Midlands was found to be the worst region of the country for social mobility for those from disadvantaged backgrounds - with half of the local authority areas in the East Midlands and more than a third in the West Midlands being classed as "social mobility coldspots".
In Kensington and Chelsea, in London, 50 per cent of disadvantaged young people make it to university, whereas in Hastings, Barnsley and Eastbourne, the university participation rate for the group falls to just 10 per cent.
Milburn said: "There is a stark social mobility lottery in Britain today.
"London and its hinterland are increasingly looking like a different country from the rest of Britain. It is moving ahead as are many of our country's great cities.
"But too many rural and coastal areas and the towns of Britain's old industrial heartlands are being left behind economically and hollowed out socially.
"Tinkering around the edges will not do the trick. The analysis in this report substantiates the sense of political alienation and social resentment that so many parts of Britain feel. A new level of effort is needed to tackle the phenomenon of left-behind Britain.
"Overcoming the divisions that exist in Britain requires far more ambition and far bigger scale. A less divided Britain will require a more redistributive approach to spreading education, employment and housing prospects across our country."
Neil Leitch, chief executive of the Pre-school Learning Alliance, said: "The commission is completely right to highlight the importance of the early years in improving social mobility.
"However, while this report focuses on the role local authorities should play in reducing inequality, it's clear that this needs to be supported by the actions and policies of central government.
"We have long argued that early years policy should focus on supporting those families most in need - which is why it's so concerning that the government's current approach to childcare and the early years actually risks worsening social inequality in this country."
Kevin Courtney, joint general secretary of the National Education Union said the report highlights the government's failure to tackle the root causes of poverty and inequality.
"The gap between the better off and the least well off is growing and Britain is an increasingly unequal and unfair society.
"The widening gap is the product of a failed approach to economic development and the incredibly short-sighted programme of austerity which has cut vital public services, including education budgets across the country."