Eight out of 10 young offenders on a flagship community punishment scheme reoffend within a year, a report says.
Those on the scheme committed fewer offences than typical after jail
But results for persistent criminals on the government's Intensive Supervision and Surveillance Programme were better than typical figures after a jail term.
While 85% of youths on the ISSP scheme committed an offence within 12 months, up to 98% of similar young offenders who are sent to jail reoffend.
The Youth Justice Board said the early results were "extremely promising".
For those young offenders who completed the whole programme, the reoffending rate dropped to 76%, the report by Oxford University academics said.
The frequency of offending fell by 43% and the seriousness of the crimes committed by 16% when comparing the year before and the year after ISSPs.
The Youth Justice Board (YJB), which runs the scheme, said it would bring in changes in response to the report's findings.
Home Secretary David Blunkett said the reoffending figures were not acceptable but nor did they tell the whole story.
He told BBC Radio 4's Today programme: "We should move into a further phase because a lot of the reoffending took place between the programme of work during the day and the curfew in the evening.
"With electronic tracking, which I announced for adults two weeks ago, we could overcome some of those problems and we could ensure we don't have youngsters learning new tricks and worse crimes inside prison."
YJB chairman Professor Rod Morgan said offenders put on the programme were extremely difficult cases.
He said: "This report shows unequivocally that this sort of offending is being addressed better by ISSPs than had these offenders been in custody.
"Home Office data indicates that if offenders from this sort of group are sent to prison they will typically be reconvicted in about 95% to 98% of cases
within two years.
"We would not expect a dramatic change and we think the early results are extremely promising."
The study found most of the people on the ISSP were "firmly engaged" in crime, having committed an average of nine offences each in the previous year.
Its authors concluded the programme was a "bold and imaginative plan to manage the future behaviour of a large number of our most problematic young people".
The ISSP, introduced in 2001 for offenders aged under 18, sets out an educational programme for offenders, who are often closely monitored using electronic tagging.
Researchers found 97% of those on the programme were in education or training and seven out of 10 took part in restorative justice to pay back harm done to the community.
Only one in five had been attending mainstream school in the six months before the scheme. About one in 10 was known to use crack cocaine and 14% heroin.