The campaign began in 2005 with the goal of testing 1.3 million people, but by August 2007 had tested only 25,000 people for HIV, Human Rights Watch and the AIDS and Rights Alliance for Southern Africa said in a report.
Thousands of counselors were supposed to receive training under the scheme, while support services for people with HIV were meant to be expanded, but those efforts were largely sidelined due to poor funding and administrative failures, the report said.
The scheme also failed to ensure that people gave informed consent to the testing or to guarantee confidentiality for those tested, it added.
"Lesotho's program was noble in ambition but weak in action," the two groups said in a statement.
The report said testing programmes should ensure that people receive enough information about the disease to make an informed decision about whether to undergo testing.
If they receive testing, the results should be confidential and people should have access to follow-up counselling and care, the groups added.
Lesotho, a tiny and impoverished kingdom completely surrounded by South Africa, is one of the countries hardest-hit by the disease, with 23.2 percent of people aged 15-49 carrying the virus.
The country has 180,000 orphans, and more than 55 percent of them lost their parents to AIDS.