MPs on the defence committee have said.
The drug has been prescribed to at least 17,000 service personnel at least once between April 2007 and March 2015.
The MPs criticised the MoD over the way it issued the controversial drug, which can cause severe side-effects, including depression and anxiety.
The MoD said the “vast majority of deployed personnel already receive alternatives to Lariam”.
Lariam – the brand name for mefloquine – is prescribed to civilians as well as troops.
While it is not the main anti-malarial drug used by the armed forces, critics argue its side-effects can be more detrimental to those serving in challenging and dangerous countries.
Malaria is a mosquito-borne infectious disease which causes fever, headaches, vomiting and diarrhoea and can be fatal.
In 2015, it killed about 438,000 people and there were 214m cases of the disease, mostly in sub-Saharan Africa, according to World Health Organization estimates.
After a six-month inquiry, the defence select committee found the potential side-effects were clearly highlighted by manufacturers Roche, but there was “strong anecdotal evidence” that the stringent conditions laid down for prescription were often disregarded.
Committee chairman Dr Julian Lewis said: “It seems quite clear that not only is the MoD unable to follow the manufacturer’s guidelines for prescribing the drug in all instances, but a number of troops discard their Lariam rather than risk its potentially dangerous side-effects.
“It is our firm conclusion that there is neither the need, nor any justification for continuing to issue this medication to service personnel unless they can be individually assessed, in accordance with the manufacturers’ requirements.
“And most of the time that is simply impossible, when a sudden, mass deployment of hundreds of troops is necessary.”
The drug’s use had had ” absolutely devastating psychological effects” in a small minority of cases,” he told the BBC’s Today Programme, and: “In a larger minority of cases there are disturbed nights, damaged sleep, psychological ideas that are unsettling and dangerous.”
“In reality the whole experience has been deeply unpleasant. So much so that phrases like ‘mad Monday’ or ‘crazy Tuesday’ are used amongst the armed forces when this stuff has been doled out in the past.”
The inquiry came after the reporter Today programme revealed that a senior military medic had called on ministers to prescribe an alternative drug until it was clear that Lariam was safe.
‘I kept thinking about hanging myself’
Maj Mick Wallace took Lariam during his deployment in Kenya in 1998, and he says he has been severely depressed ever since:
“When I came back my wife said I wasn’t the same man. I was short-tempered, anxious at times. I just didn’t feel right and it’s still going on.
“I’ve had several courses of anti-depressants and all they do is stick a plaster over it and as soon as I stop taking them, I go downhill again.
“I’ve never attempted suicide but it’s been at the back of my mind.
“Recently I went into my barn which I use as a workshop and I had to leave straightaway because I kept thinking about hanging myself.
“So many men and woman have already been affected. I think the government would be foolish not to take up the recommendations but this should have happened a long time ago.”
According to MoD figures, a minimum of 17,368 armed forces personnel were prescribed Lariam at least once between 1 April 2007 and 31 March 2015.
Over the same time period, approximately 104,000 personnel were given a different anti-malarial drug, such as Malarone and Doxycycline.
As at August 2015, mefloquine constituted only 1.2% of all anti-malaria tablets held and, in terms of doses for a six-month deployment, only 14% of the stock, the MoD said.
It is not clear how many service personnel have suffered after taking Lariam but according to retired Lt Col Andrew Marriott, who gave evidence to the inquiry, between 25% and 35% of personnel who had been prescribed Lariam on deployment experienced side-effects.
Some of those affected are contemplating legal action against the MoD.
Philippa Tuckman, from Hilary Meredith Solicitors, said more than 450 personnel had come forward since late last year, saying they had been affected.
Roche said it agreed with the defence committee’s report and it would continue to work with the MoD “to ensure they have all the relevant information to ensure Lariam is prescribed appropriately”.
The MoD said it would consider the report’s recommendations and respond in due course.
“The vast majority of deployed personnel already receive alternatives to Lariam and, where it is used, we require it to be prescribed after an individual risk assessment,” a spokeswoman said.
“We have a duty to protect our personnel from malaria and we welcome the committee’s conclusion that, in some cases, Lariam will be the most effective way of doing that.”
Malaria is a serious illness and can be fatal. Drugs can reduce the risk of malaria by about 90%.
The MoD says Lariam is an important anti-malarial tablet within its portfolio, but it is not the only one.
The exact choice of drug offered to military personnel depends on “a number of factors”, including the region the individual is deploying to, their health and any past history of side-effects.
There is no single anti-malarial that is effective against all the different possible strains of infection.
Arguably, all drugs can have unwanted effects, but soldiers have been reporting some particularly nasty ones with Lariam – depression, nightmares, hallucinations and suicidal thoughts.
The MoD says it only provides soldiers with Lariam when it is necessary and after an individual risk assessment, in line with advice given by the Advisory Committee on Malaria Prevention.
It says Lariam is not a “first-line drug” and is used primarily when other drugs would either not be effective or appropriate.
MPs on the defence committee have said.