A health trust has been heavily criticised for "institutional abuse" of people with learning disabilities.
People with learning disabilities risk becoming institutionalised
The Healthcare Commission, which carried out the review at Sutton and Merton Primary Care Trust (PCT), said care was "simply not acceptable".
It is the second report in six months to highlight neglect of people with learning disabilities.
The Commission will now carry out a national audit of 200 NHS and private services in England.
The results will be made available later this year.
The Department of Health is currently carrying out an internal review to look at whether the NHS should have responsibility for learning disability services.
The review of care at Orchard Hill hospital, community homes in Sutton and Merton and Osbourne House in Hastings was requested after a number of serious incidents, including allegations of physical and sexual abuse.
A member of staff was jailed for six years in 2006 after pleading guilty to sexual activity with a woman resident who did not have the capacity to consent due to her learning disability.
Although the trust was found to have followed correct procedures when responding to the serious incidents, the Commission concluded that "outmoded, institutionalised care" had led to neglect of people with learning disabilities.
It found "impoverished and completely unsatisfactory" living conditions, with some people staying in cramped rooms and only having access to three or four hours of activity a week.
Staff were not properly trained or supported and there were failures in management and leadership at all levels, from managers to the trust's board.
EXAMPLES OF NEGLECT
People fed too quickly to enjoy their food at mealtimes
Some people only had a few hours activity a week
Care plans only available in a minority of people
Poor communication with people with learning disabilities
Unsatisfactory environments with inadequate access, poor furnishings and insufficient space
People with learning disabilities were not supported to become independent, but instead were "institutionalised".
Examples of poor care included people being wrapped in blue tissue paper at mealtimes and being fed too quickly to enable them to enjoy the food.
The Commission said the needs of individuals had been sacrificed in favour of the needs of the institution.
Orchard Hill is one of the last long-stay hospitals to close and the trust now has a plan to relocate most of the people living there by the end of 2008.
Last year the Commission found neglect and widespread institutional abuse of people with learning disabilities at Cornwall Partnership NHS Trust.
Anna Walker, chief executive at the Commission, said: "The standard of services at Sutton and Merton was simply not acceptable in the 21st century.
"Orchard Hill Hospital is an institution and should be closed as soon as it is possible to place residents in appropriate alternative care settings.
"The Sutton and Merton case is very different from what was uncovered at Cornwall. But it is the second report of neglect of people with learning disabilities within the space of just six months.
"This confirms that we are right to be concerned about the quality of care for people with learning disabilities throughout England."
Sutton and Merton PCT said it fully accepted all the findings and recommendations in the Healthcare Commission report.
Caroline Taylor, PCT chief executive, who asked the Commission to investigate the service, said: "The Commission pulls no punches in its report and, equally, we must not hold back from making the necessary changes to put things right for this very vulnerable group of people.
"At a time when the PCT was faced with many pressures we took our eye off the ball and paid too little attention to the day-to-day running of the learning disability services.
"We now have new management in place, with new systems, and we won't fail our residents from now on."
Nigel Ellis is head of investigations at the Healthcare Commission and conducted the inquiry into Orchard Hill.
He said: "As far as the front line staff were concerned, it was well-meaning staff that were not trained, unthinking, unaware of actually the fact that these people have individual needs."
Mr Ellis added: "You have to look at responsibility at the highest level in the organisation."
David Congdon, head of campaigns and policy at Mencap, said: "This report once again highlights how services for people with a learning disability are given low priority by the NHS.
"We are appalled that such old-fashioned practices and institutional abuse can still happen and go unchecked. Without regular inspections the abuse found in Sutton and Merton, and also last year in Cornwall, will continue and this is completely unacceptable.
"Mencap has enthusiastically supported the closure of long-stay hospitals and we are deeply concerned at how long it has taken to close Orchard Hill Hospital."
Shadow Health Minister, Tim Loughton, said: "We are concerned that the latest revelations underlie a systemic abuse of people with learning disabilities and that their views and concerns are not being listened to."
Keith Smith, chief executive of the British Institute of Learning Disabilities said: "Yet again, people with learning disabilities and their families have been let down by the system that is meant to support them."