New Zealand slipped from eighth spot in last year's report, with a reported 2.1 per cent decline in happiness levels.
The report found west African nation Togo was the unhappiest place, followed by Benin, the Central African Republic, Burundi, Rwanda and Tanzania.
The rankings were based on a survey of citizens who were asked to evaluate their own happiness.
Analysts also looked at a range of other factors including wealth, health, freedom to make life choices, generosity and freedom from corruption.
The latest data was collected between 2010 and 2012.
The report concluded that the world had become a slightly happier and more generous place over the past five years, despite the obvious detrimental impacts of the 2007-08 financial crisis.
It determined that mental illness was the single most important cause of unhappiness, but this was largely ignored by policymakers.
Improvements in quality of life had been particularly notable in Latin America and the Caribbean, while reductions had been the norm in the regions most affected by the financial crisis, such as western Europe, or political and social instability, as in the Middle East and north Africa.
The report writers hoped it would bring the study of happiness into public awareness and public policy.
"There is now a rising worldwide demand that policy be more closely aligned with what really matters to people as they themselves characterise their lives," the report concluded.
"This report offers rich evidence that the systematic measurement and analysis of happiness can teach us much about ways to improve the world's wellbeing and sustainable development."
New Zealand psychologist Chris Skellett, author of the book When Happiness is Not Enough, said New Zealanders had a "pioneering ethic" and "can-do-attitude" which helped them to be a relatively happy bunch.
"Most people in New Zealand expect to be involved in a community role or in a meaningful role in society," he said.
"We also want to enjoy life and we do enjoy what we have. We value the environment, we value heritage and we're proud of who we are."
Conversely, many other countries' self esteem seemed to be based on trying to be something better or different.
"Happiness is not just about achieving something in the future, happiness is here and now, and Kiwis need to remember that."
Tauranga psychologist Michael Owen said New Zealand had a culture of self-sacrifice, and Kiwis needed to treat themselves more kindly.
"I would put the relationship with oneself before the relationship with others. One cannot have a healthy relationship with other people unless one has a healthy relationship with oneself."
