The Scottish Government is to scrap laws which allow children under 16 to be held in jail without having been convicted of an offence.
Under-16s will no longer be remanded in prison
Currently, they can be remanded in custody if their behaviour gives cause for concern.
The practice has been consistently criticised by the prisons inspector and the children's commissioner.
In future, children issued with an "unruly certificate" will be placed in secure accommodation.
Justice Secretary Kenny MacAskill said authorities would also be given the option of tagging young people or sending them home.
Currently, a small number of 14 and 15-year-olds are either sent to young offenders' institutions or adult prisons while they are awaiting trial.
Mr MacAskill is proposing that they are allowed to remain in secure accommodation even after their 16th birthday, rather than be automatically transferred to prison.
He said: "I don't believe that in the long run Scotland will be well served by jailing children.
"Lock up a youth alongside hardened criminals, and there's a risk you'll lock them into a life of crime.
"That's why I want to scrap unruly certificates and also why, where it might benefit the child, we will allow more to remain in secure care rather than transferring them to the prison estate as soon as they reach 16."
Prisons inspector Andrew McLellan welcomed the announcement, claiming that prisons containing hardened criminals were no place for children.
He added: "Perhaps these proposals mark the beginning of a serious drive to reduce numbers throughout our prisons.
"The sooner we abolish prison overcrowding the sooner prison staff will be able to do the job we want them to do to make us all safer."