The alpine country placed 26 out of 49 countries in the ranking by LGBTI advocacy group ILGA-Europe, three places down on last year and confirmation that it continues to lag far behind other European countries including Norway (2nd), the UK (3rd), France (5th), Portugal (6th) and Spain (9th).
The report ranked the 49 countries based on their laws pertaining to same-sex marriage, adoption, rights for transgender people and more.
Switzerland met just under 31 percent of the report's criteria for equal rights, far behind Malta on 88 percent, which retained its status as the most gay friendly nation in Europe for the second year running after introducing a gender identity law and ban on harmful conversion practices.
In its review of Switzerland in 2016, ILGA-Europe praised the rejection of a popular initiative on taxation which would have narrowed the definition of marriage as being between a man and a woman, potentially blocking the path to a legalization of same-sex marriage in the future.
Unlike in many other European countries gay people in Switzerland cannot marry or adopt children, but they have had the right to enter into a registered civil partnership since 2007.
The Rainbow Europe report welcomed the country's decision last year to allow registered civil partners to adopt each other's children from previous relationships.
Parliament approved the new law in March and it will not face a public vote after a campaign to launch a referendum against it failed to get the required number of signatures.
ILGA-Europe also picked out Switzerland's decision to lift the ban on gay men giving blood, and several court decisions in favour of non-binary people wishing to change their names.
However it said it was “disappointing” that the Swiss government rejected calls to introduce a new anti-discrimination action plan, and criticized the lack of references to LGBTI people in hate crime and hate speech laws.
Homophobic crimes are not currently registered as such by police, something gay rights organizations feel is a mistake, since it means no data is available to indicate the scale of the problem.
As a result gay rights umbrella organization Pink Cross helped instigate a new helpline last year for victims of homophobic crime to report it as such.
The helpline recorded over 100 cases in the first three months.
To improve LBGTI rights in Switzerland the report recommended the country update its anti-discrimination laws to explicitly include references to gender identity and sexual orientation, and include these references in an equality action plan. The rights of trans people should also be protected through a specific national action plan, it said.
Speaking to The Local last year, Bastian Baumann of Pink Cross said he was "cautiously optimistic" about the prospects for political reform on the subject of gay rights in Switzerland.
"I think our society is way ahead of our politics in some topics like changing marriage rights or adoption rights. The world will not stand still and the politics need to hurry so they don't lose sight."
According to a 2015 survey a majority of Swiss back same-sex marriage.
The full ranking: