The EU believes investing in research and innovation is key to recover from its economic crisis. Last year, the 18-member eurozone emerged from recession, but growth is sluggish and unemployment remains high.
"We seem to be closing the gap with the US and Japan ... however South Korea is still ahead of the EU in innovation," said EU Research and Innovation Commissioner Maire Geoghegan-Quinn.
The EU looked at factors including financial support and the appeal of research systems, company investments and entrepreneurship, and how well innovation translates into economic benefits.
The European Commission's report comes weeks after European Investment Bank (EIB) President Werner Hoyer warned of a "huge innovation challenge."
"Europe is falling behind its competitors and it is time to ring the alarm bell," Hoyer said at the EIB's annual press conference.
EU research and development budgets have been stagnant, while the bloc has significantly fewer researchers than the US, Japan or South Korea, he said, warning also of falling EU patent applications and "blanks" in the field of digital infrastructure.
"To catch up with the leading technology providers ... Europe would need to spend 140 billion euros (193 billion dollars) more on research and development per year," the EIB president said.
Japan spent 3.3 per cent of gross domestic product on research and development in 2012, while the US spent 2.8 per cent, Hoyer said. In the EU, the figure was 1.9 per cent.
The 28-member EU is still outperforming some regions, according to Tuesday's figures, with a lead over Australia and Canada, as well as Brazil, Russia, India, China and South Africa - the so-called BRICS countries.
But China's innovation performance, currently at 44 per cent of the EU level, is "improving faster and at a higher rate than the EU," the report said.
The scoreboard also found large differences within the EU, with Germany and the Nordic countries leading the way, while Bulgaria, Latvia and Romania all lag well below the EU average.