"We have found that unexpected and unnecessary burns were caused to some monks and civilians because the police used smoke bombs without knowing what their effect would be," the report said, adding that the devices used contained phosphorus, which "can cause fires when they explode".
The probe also backed continued work at the controversial Chinese-backed mine in northern Myanmar, despite conceding that the benefit to the country was "slight".
The recommendation is likely to anger local people who have mounted fierce opposition to the project over environmental concerns and allegations of land-grabbing.