European financial integration has deteriorated in recent years due to financial crisis, a European Central Bank (ECB) report said on Thursday.

The worsening of the sovereign bond market in 2011 further dented integration, according to the annual report tracking the financial integration of Europe.

"After the turn of the year, and especially after the allotment of the second ECB 3-year refinancing operation, the indicators of financial integration have shown signs of improvement," the report said.

Aimed to avoid a credit crunch, the ECB has lent over 1 trillion euros (1.3 trillion U.S. dollars) to banks in the form of 3-year loans over two operations in December and February.

The integration of pan-European financial services has suffered a clear setback since 2007, among which the sovereign euro area bond market crisis has played a crucial part, according to the report.

The euro area bond markets experienced severe tensions. Secured and unsecured money markets have become increasingly impaired, especially across borders, the report said.

It suggested enhancing the single market program, strengthening eurozone monetary regulation and policy action at national level as possible solutions.

The completion of the current institutional reforms, and working towards a fiscal union can contribute to a better environment that can surpass the crisis, said the report.