The Ruskin Mill Educational Trust's report suggests that hands-on work and play allows children to gain an understanding of materials, and experience how the world works in practice.
It claims that the reduction of subjects where kids are taught to make artwork from wooden and metallic material is having an adverse effect on school pupils.
"(Outside school) The use of young hands has been reduced to the pressing of buttons or the clicking of a mouse," the Telegraph quoted the report's author Dr. Aric Sigman as saying.
"But there are sound neurological and cognitive reasons why all children should be experiencing a more 'hands-on' element to their daily lives," he added.
The report shows that a decline in practical hands-on work is adversely affecting the cognitive development of children up to the age of 11.
This is also impacting the British economy, with a decline in engineering skills at the very time they are needed by the business world, says the report.
Dr. Signam says the report goes to pinpoint that even those working in the digital sector require tangible experiences of the real world.
"Using their hands simply makes children more intelligent," he said.
According to him, there is a growing body of evidence that working with one's hands does more than stimulate the areas of the brain that control hand and arm movements.
He says that during childhood and teenage years, in particular, it stimulates a number of areas of the brain involved in other functions, which play a part in learning and cognitive development.