An international report says Sweden needs to urgently address the declining performance of its schools, a growing embarrassment for the Scandinavian welfare state.

Swedes are used to seeing their nation rank near the top in international surveys on everything from quality of life to economic competitiveness.

But the performance of Swedish students in an international test for 15-year-olds has plunged in the past decade from average to significantly below average.

In a report handed to the Swedish government on Monday, the Organization for Economic Cooperation and Development urged Sweden to "urgently reform" its school system.

Its proposals included raising the status — and salaries — of teachers, placing higher expectations on students and improving the integration of immigrants, who on average score lower than native students.