It warned of impending "calamity" if the international community does not immediately step up relief efforts in the impoverished Arabian Peninsula nation.
More than 50 percent of Yemeni children suffer from stunted growth because of chronic malnutrition, and a nationwide fuel crisis triggered by the political turmoil has driven rising levels of hunger across the country, Oxfam said.
It said fuel prices, which have risen more than 500 percent since protests against President Ali Abdullah Saleh began in January, "triggered rapid inflation, damaging livelihoods and industry, leading to significantly reduced availability and affordability of food."
The report, "Fragile lives in hungry times," accused the international community of further compounding the already severe hunger crisis in Yemen because of their reluctance to increase aid and divisions among donor nations about how to address the growing humanitarian concerns.
"There are a myriad of reasons why donors have found it difficult to provide funds... insecurity in the country or lack of political settlement... but this does not excuse the lack of immediate action," Oxfam said.
Yemen, the poorest Arab nation, has received only a fraction of aid relative to other countries in the region.
"While billions of dollars have been donated to Tunisia, Libya, and to a lesser extent, Egypt to rebuild their economies, Yemenis are facing chronic hunger and have few resources at their disposal," the report said.
Meanwhile, Yemen's most vulnerable, its women and children, are suffering the brunt of this humanitarian crisis.
"Yemeni women experience the greatest levels of sexual discrimination in the world... when food is scarce, women eat last and least," the report said, adding that a quarter of Yemeni women between 15 and 49 are acutely malnourished.
Children, meanwhile, are being pulled from school to work to help pay for the rising costs of food.
In a study of families in Hudaydah province on Yemen's western coast, Oxfam found that a fifth of the people interviewed "admitted to withdrawing their children from school to find employment to help pay the household expenses."
Families across Yemen are resorting to extreme measures to survive.
Murshid Saeed, 40, a Sanaa resident and father of seven, said he married off both his teenage daughters so he could lighten some of the financial burden on his family.
The girls, aged 16 and 17, "are now their husbands' responsibility," he told AFP on Sunday.
"Our situation has gone from bad to worse," Saeed said, adding that he pulled his 10-, 12- and 13-year-old boys out of school so they can get jobs.
All three now sell random goods on Sanaa's streets.
Months of protest have weakened the government's grip on power, sparking defections among the army, prompting battles among loyalists and dissidents in the capital, and escalating a war against militants linked to Al-Qaeda in the southern provinces.
Saleh, meanwhile, has refused to step down, despite regional and international demands for him to do so.
Humanitarian agencies, which Oxfam says are also severely under-funded, are struggling to reach Yemen's most vulnerable people, a task complicated by the increased insecurity in a country that is severely resource-poor.
"Yemen faces a perfect storm of challenges confronting its progress," the report concluded.
It added that if an equally "comprehensive SET of innovative solutions" is not found, the sustainability of "the state itself" will be threatened.
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