VisitScotland, the national tourism agency, should be replaced with a new, more competent, industry body according to a report by The Royal Society of Edinburgh (RSE).

In the report, titled RSE Committee of Inquiry into the Future of Scotland's Hills and Islands, which examined the economic future of these Scottish regions, RSE accused the agency of weak performance and called for much needed improvement.

The RSE recommends that a new body – which could be called Tourism Scotland – should be created to market Scotland domestically and overseas, where there is untapped potential for development.

The report said: "Given the level of criticism of VisitScotland, the Scottish Government should radically change the institutional structure for tourism by establishing a new national tourism organisation, with combined responsibility for development, investment, marketing and training."

It also suggests the formation of Regional Tourist Boards (RTB), to ensure that individual areas benefit from their tourism potential.

The report highlighted that VisitScotland's marketing expenditure for 2007 was £27m, almost half of Ireland's £50m budget. The RSE, in turn, calls for increased funding for tourism from the Scottish Government: "A higher level of investment would yield economic and employment benefits far outweighing the additional investment."

Among the 60 or so recommendations outlined in the report is the suggestion to promote Scotland as "one of the major outdoor activity centres of Europe", rivaling Switzerland and Austria.

The report proposes that RTB's should establish, as a matter of urgency, Outdoor Activity Centres and marinas throughout the hill and island areas as well as facilities for white water rafting and rock climbing.

In response, VisitScotland said it was disappointed at the reports findings and insisted that there is no need to replace the agency, but to provide it with "enhanced powers".

A spokesperson for the tourism agency said: "VisitScotland is committed to promoting our islands and rural areas through a vast array of national and international campaigns.

"Recent campaigns include our Perfect Day campaign, where a cinema advert featuring Barra was shown to hundreds of thousands of potential visitors in London and the South East of England.

"Our Winter White seasonal campaign, which focused heavily on rural areas, brought £35 million of tourism revenue to Scottish tourism businesses last year. In addition Harris was featured at major consumer events in Toronto and New York and an extensive marketing campaign in North America earlier this year, which reached 40 million consumers.

"We have also provided significant funding to rural groups through our Challenge Fund programme (now known as Growth Fund). This has helped groups of tourism businesses, many of them in Island or rural locations, such as Winter Harris, to develop joint marketing campaigns to benefit their local areas.

"Our recent restructure enables us to focus even more closely on our customers, from visitors to tourism businesses." In April 2008 VisitScotland was reorganised around six regions – three Highland and Islands Enterprise and Scottish Enterprise regions and threes Island regions. The intention is to make the agency easier for regional businesses to engage with.