The 30-acre (12 hectares) Dandora Municipal Dumping Site, located at the centre of three slum settlements home to about a million people, receives around 2,000 tonnes of waste generated by the capital's 4.5 million people everyday.
Hundreds of impoverished slum dwellers and homeless families searching for recyclables work daily amidst the heaps of rubbish, also populated by vultures and other scavengers.
The report, commissioned by the Nairobi-based UN Environment Programme (UNEP), found that half of 328 children examined had concentrations of lead in their blood exceeding internationally accepted levels.
Some 42 percent of soil samples recorded lead levels almost 10 times higher than what is considered unpolluted soil, with 400 parts per million (ppm) compared to the 50 ppm threshold, it added.
"Children have been exposed to pollutants such as heavy metals and toxic substances through soil, water and air with implications for respiratory, gastrointestinal and dermatological or skin diseases," said a UNEP statement.
"Almost half of the children tested were suffering from respiratory diseases, including chronic bronchitis and asthma," it added.
UNEP Executive Director Achim Steiner said the findings were worrying and pledged to assist authorities in developing an improved waste management system.
"The site here is killing children and people.... it is a human tragedy and an ecological disaster. Dumping sites are poisonous if they are not handled properly," Steiner said.
"The Dandora site may pose some special challenges for the city of Nairobi and Kenya as a nation. But it is also a mirror to the condition of rubbish sites across many parts of Africa and other urban centres of the developing world," he added.
The Nairobi City Council, ranked by many watchdogs as one of the most corrupt institutions in the country, has already been singled out for its failure to manage waste in East Africa's largest city.