The report, which tracks the number of underweight children around the world as a measure of insufficient nutrition, highlighted China - home to 86 million children - as a success story.
China reduced child underweight rates from 19 per cent in 1990 to 8 per cent in 2002, said the UN-backed children's charity. China's child mortality rates also declined from 49 per 1,000 births to 31 per 1,000 during the same period.
"The virtual elimination of iodine deficiency has boosted the brainpower of China's children," the study said.
But it also points to significant disparities between urban and rural areas. For example, each year 1.5 million newborns in five provinces in China are unprotected against iodine deficiency disorders due to lack of iodized salt.
Yet the country still has the highest level of iodized salt consumption in the region - 93 per cent of households.
Malaysia has also achieved the UN goal of reducing underweight children and made the fastest improvement during the studied period. Underweight prevalence fell by more than one half between 1990 and 2003.
Indonesia, Singapore and Vietnam are also on track, said the report, pointing out that Singapore now has the lowest under-five mortality rate in the world - lower than all industrialized countries except Iceland.
Some progress is being made in the Lao People's Democratic Republic, Myanmar and the Philippines but it is still insufficient to meet the target. And Cambodia is currently least likely to reach the millenium development goal target of eradicating extreme poverty and hunger by 2015.
Achieving this goal means halving the proportion of children who are underweight for their age, the most visible sign of undernutrition.
"The country has by far the highest rate of child mortality in the region, its proportion of underweight children grew between 1993 and 2000, only 12 per cent of Cambodian babies are exclusively breastfed and a mere 14 per cent of households consume iodized salt," said the report.
And in Aceh, Indonesia, a survey conducted in early 2005 showed an average wasting level of 11 per cent among children under five displaced by the tsunami.
This was virtually the same as among children not affected and slightly lower than levels seen just after the tsunami, highlighting the fact that poor nutrition is a long-term chronic problem related to poverty, poor nutritional knowledge and practices, and inadequate sanitation and food security.
Yet it is south Asia that has the biggest job to do. Just three countries - India, Pakistan and Bangladesh - currently account for more than half the world's underweight children.
Approximately 47 per cent of India's under-five population is underweight, dragging down the regional average.
The report proposes simple solutions for improving children's diets, such as vitamin A supplements and fortified foods. It also calls for child nutrition to be made a central component of national policies and budgets and promotion of exclusive breastfeeding.
"Few things have more impact than nutrition on a child's ability to survive, learn effectively and escape a life of poverty," said Unicef executive director Ann M. Veneman.