Figures show 20,500 instances of unwanted sexual contact occurred in 2018, up from 14,900 in 2016 which is the last time a survey was conducted.
Alcohol was involved in one third of cases, and female recruits ages 17 to 24 are at the highest risk of attack.
On Thursday, Acting Defence Secretary Patrick Shanahan directed the military to "criminalise" sexual harassment.
Sexual harassment can fall within other legal violations of military behaviour, but is not yet a "stand-alone" criminal offence.
The directive from Mr Shanahan was among a series of other recommendations, released in a memo on Thursday.
"Sexual assault is illegal and immoral, is inconsistent with the military's mission and will not be tolerated," he wrote.
In the US, sexual harassment is illegal, considered a form of sexual discrimination under Title VII of the Civil Rights Act, which also covers discrimination based on race, skin colour, religion and national origin.
What does the report show?
The report released on Thursday surveyed the Army, Navy, Air Force and Marines, and estimated a total of 20,500 cases in 2018.
The total figure is based reports of attacks as well as an extrapolation of survey data which was gathered through a poll of over 100,000 troops. Researchers say the survey has a 95% level of confidence.
Incidents of unwanted sexual contact - which ranges from groping to rape - rose by around 38% between 2016 and 2018.
Only one out of three cases were reported to authorities, the report found.
In 2006, only one in 14 victims reported sexual assault crimes, the Pentagon said.
In a statement issued on Thursday, the Marines acknowledged they had "historically viewed an increase in reporting as an indicator Marines feel more empowered to report more confident in the care victims receive".
"However, with the number of estimated assaults rising, especially among our young Marines, the Marine Corps must evolve its prevention methods and continue to foster a climate and culture of dignity, respect and trust," the statement said.
In more than 85% of cases, victims knew their attacker. The majority of cases involved young women whose attacker was often a superior officer.
The report should be "a trip wire", said Nate Galbreath, Deputy Director of the Department' of Defense's Sexual Assault Prevention and Response Office.
"This is what tells us that there's something going on that we need to hone in on," he told ABC News.
"We've got a higher prevalence for women 17 to 24. We're going to be focusing very, very tightly on that."
