The group would have representation across the forestry sector, the report said.
It was hoped to be in place within the next three months, and was one of many recommendations the report made to help reduce the rate of serious injuries and fatalities in the forestry sector by 2017.
First Union general secretary Robert Reid said the report was a wake-up call for everyone in the sector, including unions.
"For far too long there has been an antipathy against worker representatives and unions in the forest sector," he said.
"The Forest Safety report pulls no punches and puts the responsibility on all forestry stakeholders including workers and unions to work together to bring a sea change of safety improvements in the industry."
Mr Reid said the First Union was willing to play a full role in the creation of the Flag group.
CTU president Helen Kelly, who has long been campaigning for change in the sector, said the review's recommendations must be implemented to ensure everything possible was done to make forestry safer.
"It is fantastic to see the acknowledgment of mandatory standards including the rights of workers - that these standards are necessary and non-negotiable," she said.
"Clear competency standards are critical in ensuring workers are trained to perform their work."
WorkSafe New Zealand chief executive Gordon MacDonald said the report had clearly identified the problems facing an industry in which 10 workers were killed last year.
"The review's analysis matches our own view and leaves no doubt about the need for comprehensive, integrated action by all participants in the sector, including the regulator."
Labour's forestry spokesperson Chris Hipkins said the Government needed to adopt a zero tolerance approach to workplace accidents in the forestry sector.
"It is time for the Government and the forestry sector to put an end to the dangerous practices which resulted in the deaths of 10 workers last year alone."
Since 2008, 32 people have died while working in New Zealand forests, making it the most dangerous sector in which to work in New Zealand.
The injury rate is double that of other sectors and the fatality rate is 15 times the overall rate for all sectors combined, according to information from Statistics New Zealand and the Ministry of Business Innovation and Employment.
Workplace Relations and Safety Minister Michael Woodhouse said the Government supported the findings of the review and the establishment of the Flag group.