The aid organisation said billions of dollars had been used for "unsustainable, expensive and sometimes dangerous aid projects" supporting short-term foreign policy and security objectives.
Oxfam particularly highlighted tens of billions of dollars spent in Iraq and Afghanistan over the past decade.
The report said since 2002, one third of development aid to 48 of the world's poorest states had gone to Iraq, Afghanistan and Pakistan.
"During this period aid to Iraq and Afghanistan alone has accounted for over two-fifths of the entire $178bn global increase in aid provided by wealthy countries.
"Since 2001 there has been a growing trend of aid being used to win 'hearts and minds' in conflicts," said Oxfam.
"Unfortunately, this aid is often poorly conceived, ineffective, and in some cases has turned beneficiaries and aid workers into targets for attack, Oxfam said, accusing governments of action that "dangerously blurs the line between civilian and military activity."
In 2010, 225 aid workers were killed, injured or kidnapped in violent attacks, compared to 85 in 2002. Oxfam said this was partly because of an increase in politically-motivated attacks.