A report by the group highlights secret defence budgets and poor oversight of militaries as particularly problematic.
The region has some of the fastest growing defence budgets in the world.
The report says defence corruption has also fuelled the rise of extremist groups such as Islamic State (IS).
The release of the report comes amid several conflicts in the region, including the fight against IS in Syria and Iraq, the Syrian civil war, fighting between militias in Libya and an air campaign by a Saudi-led coalition against Shia rebels in Yemen.
"Corruption has fuelled political unrest, extremism, and formed a narrative for violent extremist groups," Transparency International's Government Defence Anti-Corruption Index says.
The report examined 17 countries from Morocco to Iran, that have spent a total of more than $135bn (Â£88bn) on their militaries. Israel and the Palestinian territories were not included.
The report says most of the countries it studied - excluding Jordan and Tunisia - provided no detailed information about military spending.
The details of Egypt's defence budget of $4.4bn are a state secret, with the military maintaining its own bank accounts and acting without oversight.
The Saudi government meanwhile uses arms purchases to seal alliances, buying similar weapons systems from different nations.
The report concludes:
The report also says that states that export weapons to the region should beware of the growing risk of arms proliferation and conflicts there.
"Governments in the region and their international allies should prioritise the creation of accountable defence institutions... in order to achieve sustainable security," the report says.
Corruption in the defence sector poses a huge risk to the security and stability of countries in the Middle East and North Africa, watchdog Transparency International says.