Patients at Kerry General Hospital were found to be at risk of infection and the bacteria that causes Legionnaire's disease.
Inspectors said the hospital in Tralee posed a serious risk to the health and welfare of patients during a visit there in July.
There was particular criticism of the failure to maintain the physical environment of the hospital, said the report by the Health Information and Quality Authority (Hiqa).
Inspectors found the operating theatre was dilapidated, with several walls, ceilings, woodwork and floors significantly damaged, worn and non-intact to the point where they could not be cleaned properly.
This was of particular concern in an area such as the theatre.
The inspectors said the hospital's cancer unit was cramped, and medication, which was given to patients intravenously, was inappropriately being prepared near a sink and entrance doors.
A follow-up inspection in August found that improvements had been made.
The cancer unit was changed to another location on a temporary basis and there were plans to move it permanently. The hospital also had plans to renovate the operating theatre.
An action plan is now in place which the hospital must follow up on. Hiqa inspectors will monitor its implementation and revisit the hospital.