Judges in Strasbourg also said the police probe lacked independence because the force was suspected by Mrs Finucane's widow Geraldine of making death threats against her husband.
He was gunned down by loyalist Ulster Defence Association gunmen in front of his family at their north Belfast home in February 1989.
It later emerged that some of the terrorists allegedly involved were working at the time for British military intelligence and the RUC special branch.
Separate inquiries into the shooting one by the Metropolitan Commissioner John Stevens and a second by a retired Canadian Judge Peter Cory are expected to end later this year.
A man is also awaiting trial accused of the murder, and even though up to 20 military and police officers could be implicated by the Stevens inquiry, the DPP in Belfast is considering an interim report.
Human rights groups insisted last night the Strasbourg judgement was so compelling, British Prime Minister Tony Blair must yield to the widespread and heightening demands for an international public inquiry.
The Finucane family said they would settle for nothing less.
Dublin-based lawyer Martin Finucane, a son of the murdered solicitor, said Britain could not and would not investigate because the accusations it faced were absolutely true.
But he said it must remedy its violations of Article 2 of the Human Rights Convention without further delay.
"We have a judgment from the highest court in Europe that his [Pat Finucane's] right to life was violated. The UK have been found wanting because they did not properly protect his life nor investigate his death.
"It is easy to see why they didn't want to investigate this murder. They were the instigators and facilitators of it."
Mr Finucane added: "The only way the British government can hope to reclaim any part of its shattered reputation is by establishing a full, independent judicial public inquiry without further delay."
Mrs Finucane, who was awarded over £30,000 (43,000) in costs and expenses, was not available for comment, but Amnesty International, British Irish Rights Watch and the Belfast-based Committee on the Administration of Justice all demanded immediate action by Downing Street.
A statement said: "It is time the Government stopped aiding and abetting those who have been engaged in collusion and cover-ups, and allowed the truth to be told about this case by establishing a public inquiry."
The Strasbourg judges ruled unanimously that the police investigation had breached human rights. The judges not only questioned the police investigation, but criticised the inquest into the death for not including any inquiry into the allegations of collusion and for refusing Mrs Finucane permission to make a statement about the alleged threats to her husband.
"The inquest therefore failed to address serious and legitimate concerns and could not be regarded as having constituted an effective investigation," the judges said.
Apart from the RUC's own inquiry Mr Stevens has been involved in three separate investigations into the collusion allegations, and they also came under fire in the judgment.
"Of the three inquiries, it was not apparent that the first two had been concerned with investigating the death of (Mr Finucane) with a view to bringing a prosecution and, in any event, the reports had not been made public, so the necessary elements of public scrutiny and involvement of the family were missing," the judges said.
They added: "While the third inquiry was specifically concerned with the murder, the Government admitted that, taking place some ten years after the event, it could not be regarded as having been carried out promptly and expeditiously. Moreover, it was not apparent to what extent the report itself would be made public."