The new total of 65.6 million people displaced from their homes is 300,000 higher than the 2015 number, which had been the highest since World War II.
Turkey was the country hosting the largest number of refugees in the world, with 3.1 million, followed by Jordan, Palestine, Lebanon and Pakistan.
There were 40.3 million people displaced inside their own countries at the end of 2016, slightly fewer than the 40.8 million at the end of 2015. Then there are asylum-seekers who have fled their country but haven't been granted refugee status.
The Geneva Convention says countries should accept someone as a refugee if they have fled their own country because of a 'well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion'.
"By any measure this is an unacceptable number, and it speaks louder than ever to the need for solidarity and common objective in preventing and resolving crises", the United Nations high commissioner for refugees said in Geneva.
South Sudan's civil war, which began in December 2013, has left tens of thousands dead and forced a total of 3.7 million people from their homes - almost a third of the population.
The internal strife in South Sudan has become the source of the fastest-growing displacement crisis in the world.
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Of the 65.6 million displaced people in the world, 10.3 million had become displaced in 2016.
Ahead of a United Nations-backed summit here aimed at raising awareness of the refugee crisis, Uganda said it needs Dollars 2 billion to look after the refugees and host communities.
The UNHCR report added that even this number probably "underestimated the true figure". Most fled the conflict in South Sudan.
In contrast, almost of all of the South Sudanese refugees have sought protection in neighbouring countries such as Uganda, Ethiopia and Sudan.
Evacuees make bread inside a refugee camp in Erbil, Iraq, for people who fled from Mosul due to fighting between Iraqi forces and Islamic State militants. For the fifth year in a row, the number of people displaced worldwide continued to increase from an already historically high level.
This is "the highest figure since we started recording these figures", UNHCR chief Filippo Grandi told reporters ahead of the report launch.
"We have to do better for these people", Grandi said.
Overall, the refugee population from the world's youngest country swelled 85 percent a year ago to reach 1.4 million by the end of 2016, the UNHCR report showed.
Among its findings, the report noted that some 75,000 asylum claims were received from children travelling alone or separated from their parents.
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