The watchdog said West Sussex Council was at fault for advising the girl's school not to send work home when she stopped attending, and for not considering alternative provision sooner.
The girl, who is now 15, started refusing to go to school in her early teens and eventually her attendance dropped to below 60 per cent. Her parents and school tried a number of ways to help her, but she refused to engage.
The council wrote to the parents to start legal proceedings against them for non-attendance. The parents explained they were doing everything to get their daughter into school.
The council refused the parents' request to suspend proceedings while they sought help from child and adolescent mental health services (CAMHS), but said it would withdraw action if the girl's attendance improved, or there was evidence she was medically unfit to attend school.
A forum meeting agreed the school would send work home for the girl, but afterwards a council officer told the school it did not support this approach unless the parents provided medical evidence for the non-attendance.
A youth worker thought the girl was not capable of attending school and wanted to see a "blended learning package" put in place. However, a council officer said without a formal diagnosis that was not an option.
Eventually the girl was diagnosed with high levels of anxiety and social and school phobia. The council withdrew the parents' prosecution, and made a referral to consider a programme of blended learning.
The ombudsman did not criticise the council for starting legal action against the parents for non-attendance at school, but found it at fault for advising the girl's school not to send work home, and for not considering alternative provision sooner.
The report said: "Where a child cannot attend school for medical reasons the council is entitled to expect medical evidence to be provided.
"However, the council needs to consider the individual circumstances of a case, and not adopt inflexible policies."
Local government and social care ombudsman Michael King said: "The Education Act specifically states that councils have a duty to provide education for children who ‘by reason of illness, exclusion or otherwise may not receive suitable education'.
"In this case, while I appreciate the parents could have explained sooner their daughter's non-attendance, officers should have considered offering the family a learning package at an earlier stage, rather than continuing to focus on prosecuting the parents.
"I hope the recommendations I have made to make staff aware of their duties to children out of school, will ensure children in similar circumstances receive the education they are entitled to."
However, a spokesman at West Sussex County Council said the decision was likely to set an "inappropriate and unmanageable precedent" for the future in requiring local authorities to provide alternative education without professional evidence of need.
"In working with the family and young person in this case, the lack of supporting information and professional diagnosis of anxiety issues, led to our view that the student was correctly considered as a school refuser," he said.
"Indeed, there was a history in this case of persistent and unexplained poor attendance. The school firmly believed that they could meet the young person's needs and offered appropriate support to do so.
"No medical evidence was offered until the week of the court date to suggest that the young person was too ill to attend school. As soon as we were in receipt of this information, legal action for poor attendance was immediately withdrawn and a referral for alternative provision was made."
The ombudsman has ordered the council to pay the family £400 to recognise the loss of educational opportunity during the period the girl was not at school, to apologise to the family, and to remind staff of the duty to provide alternative education under section 19 of the Education Act 1996 that may arise for reasons other than exclusion and illness.