A study of 600 secondary schools in 2003-4 shows fewer than seven in 10 pupils aged 15 to 16 were taking a GCSE in a language.
The figure for a study of 519 schools in 2002-3 was 73%.
Languages had been compulsory at GCSE until earlier this month, when the government removed the requirement.
'Force feeding'
Ofsted found some schools were already reducing the number of teaching groups in modern foreign languages in 2002-3.
In those where large numbers of pupils were entitled to free meals, the picture was "significantly worse", with fewer than half of pupils continuing with a foreign language after the age of14.
Inspectors found fewer than one in 10 children were studying two or more languages.
The government argues that the previous policy of "force feeding" languages to GCSE pupils was having a detrimental effect.
Instead, it wants more primary school children to take up French, Spanish and German, in the hope this will encourage a natural affinity.
Ofsted notes this approach is having a "positive impact" among seven to 14 year olds.
The key is to get children
excited by languages when they are seven, not wait until they are at
secondary school. Stephen Twigg, schools minister |
David Bell, the chief inspector of schools, said languages were "an important part of the curriculum".
He added: "Languages can improve people's job prospects and their knowledge of the world and can help break down cultural barriers.
"Schools, teachers and parents must now work to ensure that pupils recognise the benefits of learning a foreign language and make sure that young people have the opportunity and desire to continue studying modern foreign language at Key Stage 4 [GCSE level] and beyond."
But many of those aged 14 to 16 "cannot use foreign languages independently and spontaneously and lack the confidence to write or speak fluently at any length", the report says.
In one in eight schools inspected in 2002-3 achievement was "unsatisfactory" in this area.
Following on from this, A-level entries in languages in 2003 were lower than those of 2001.
Take up for French was down by 18%, German by 21% and Spanish by 5%.
All children aged seven in England will have an "entitlement" to learn a language by 2010, the government says.
Schools minister Stephen Twigg said: "Language skills help people's employment prospects and their knowledge of the world, breaking down cultural barriers. The key is to get children excited by languages when they are seven, not wait until they are at secondary school.
"That's what we are now doing and half of all primaries are now teaching languages, compared to a fifth in 2001. We do not want to go back to the old days when we tried to force feed languages to 15 year olds who had no aptitude or interest."