Many under-18s locked up on remand are later found innocent
Up to three-quarters of children who are locked up before they appear in court do not subsequently receive a jail sentence, a report says.
The Prison Reform Trust says children should only be remanded before trial if there is evidence they may commit a violent offence if released on bail.
It wants budget reforms to remove the incentive to jail children on remand.
The Ministry of Justice said decisions on whether to remand an under-18 to custody were "rightly for the courts".
The report, Children: Innocent Until Proven Guilty, says that of those children placed in remand by magistrates' courts, three quarters will be found innocent or will not receive a prison sentence for their crime.
This, the report says, means they were locked up without ever being convicted.
It is disturbing that in many parts of the country prison is being used as a convenient place to park innocent children while they await trial
Penelope Gibbs, Prison Reform Trust
The trust quotes the UN Convention on the Rights of the Child, of which the UK government is a signatory, states child imprisonment should be used "only as a measure of last resort and for the shortest appropriate period of time".
It says that in 2007-08, the average population of under-18s in custody at any one time was 2,942, of whom 606 were on remand.
This is an increase of 41% from 2000-01, when the average population was 2,807, with 429 on remand.
The trust estimates more than 1,000 children who are found innocent at trial are locked up each year.
It recommends the government and the Youth Justice Board should focus on areas with particularly high remand rates.
Additional support and training to local youth offending teams, prosecutors and magistrates should also be given, it says.
The report also states that because child custody is paid for by central government, "there is a perverse incentive which encourages local authorities not to provide specialist remand accommodation as an alternative to prison".
It calls for the budget for remand to be delegated to local authorities, stating that "if local councils had to foot the bill for every child in their area who goes to jail they would have a greater incentive to prevent offending and to offer robust alternatives to custody".
Penelope Gibbs, of the Prison Reform Trust, said: "It is disturbing that in many parts of the country prison is being used as a convenient place to park innocent children while they await trial.
"If we want an effective and decent youth justice system which is focused on helping children out of trouble rather than criminalising them, the government must work with local councils and courts to put a stop to this abuse of the remand system."
Children's Society policy adviser Elizabeth Lovell described the report as "excellent" and said it reflected what it had seen in practice.
"Our Remand Review Scheme highlighted how many young people were being remanded to secure facilities unnecessarily. We believe that children should only be imprisoned on remand in only the most exceptional circumstances," she said.
"It is often the most vulnerable young people who are being locked up."
A Ministry of Justice spokesman said: "The decision as to whether to remand a young person under 18 to custody is rightly for the courts.
"Similarly, bail decisions and sentencing in individual cases are a matter for the judiciary who are independent of government. They will make their decisions based on the facts of each individual case.
"The government believes that young people should only be sent to custody as a last resort. During the last seven years there has been a 10% decrease in the number of young people remanded to custody."