The new report from the Information Warfare Monitor, a group comprising researchers from Ottawa-based think tank SecDev Group and the University of Toronto's Munk Centre for International Studies, was originally set up to investigate allegations of Chinese snooping on Tibetan exiles.
However, the research ended up uncovering a much larger scale operation, eventually taking ten months to complete.
According to a report in The Independent, the researchers uncovered a network involving 1,295 compromised computers from the ministries of foreign affairs of Iran, Bangladesh, Latvia, Indonesia, and others, and embassies including India, South Korea, Indonesia, Germany and Pakistan.
Computers in the offices of the Dalai Lama in India, Brussels, London and New York, were also compromised.
The network, dubbed GhostNet, used malware to penetrate PCs, conduct covert monitoring and steal files, according to the reports.
The malware could also switch on the audio and camera equipment sometimes built-in to PCs in order to monitor those in the same room as those computers, the reports said.
"This report serves as a wake-up call... these are major disruptive capabilities that the professional information security community, as well as policymakers, need to come to terms with rapidly," the researchers are quoted as saying in The Guardian.
Althought GhostNet is thought to have been controlled from Chinese PCs, the researchers were not able to make any firm link to Chinese government agencies.
The team has now notified law enforcement agencies, including the FBI, according to reports.