The Nordic nation of 5.5 million people, known for their love of forests, lakes and saunas, topped the study which used survey data asking citizens in 156 countries how happy they perceive themselves to be, as well as measures such as life expectancy, income and social support.
The other Nordic countries, as well as the Netherlands, Switzerland, Canada, New Zealand and Austria also made the top ten.
As well as performing well on all the indicators, the most content countries all tended to have very stable societies, with happiness levels changing comparatively little since 2005.
Despite the political turmoil brought by Brexit, Britain rose four places in the rankings to 15th.
The United States, meanwhile, continued its slide of recent years, dropping one spot to 19th place.
"This year's report provides sobering evidence of how addictions are causing considerable unhappiness and depression in the US," said professor Jeffrey Sachs, one of the report's authors.
The unhappiest nation was South Sudan, where the UN recently said 60 percent of people face food insecurity following a bloody civil war which has claimed the lives of an estimated 400,000 people.
Other conflict-ridden countries, such as Yemen, Afghanistan and the Central African Republic, also featured at the bottom of the table.
Released on the International Day of Happiness on March 20, the report warned that world happiness has declined in recent years, driven by a sustained fall in India, which this year ranked in 140th place.
This has coincided with a rise in negative feelings, "comprising worry, sadness and anger, especially marked in Asia and Africa, and more recently elsewhere," it said.
This year's publication also looked at how countries have performed in the happiness rankings since 2005.
Of the 20 largest gainers, half are in Central and Eastern Europe, five are in sub-Saharan Africa, and three in Latin America.
The five largest declines since 2005 were in Yemen, India, Syria, Botswana and Venezuela.