Detainees in young offenders’ institutions are more likely to suffer violence and longer periods in isolation, it was claimed.
Youngsters can also be locked up in secure training centres and secure children’s homes.
The Children’s Commissioner Anne Longfield, who commissioned the research, said: “Keeping children in units where they are likely to suffer violence, intimidation and longer periods of isolation has long-term costs. Children in those environments are more likely to reoffend when they are released.
“When children are kept in isolation their education is disrupted and it is far harder to reintegrate them into society once they have served their sentences.
“The Justice Secretary needs to take note of this report and consider replacing large children’s prisons with small secure units.
“These may be more expensive to run in the short term because they require a higher adult to child ratio but would be cost effective if they help to keep young people out of trouble in the future.”
The study found that on average, a third of children in the youth justice secure estate in England are subject to isolation at some point. The approach is often used as a method for maintaining order and safety.
Young people held in secure children’s homes and training centres are usually placed in isolation for shorter periods than those locked up in larger young offender institutes, according to the report.
It called for an end to solitary confinement, saying this can see children kept in isolation for 22 hours or more.
Ms Longfield said: “Even where there are children who may never be released from prison, long periods of segregation is likely to have detrimental effect on their behaviour and outcomes.
“The number of children held in secure units has fallen dramatically in recent years to around 1,000 children from about 3,000 seven years ago so the effective reintegration of those who are released is within our grasp.
“We need to ensure that the right resources are available to eradicate re-offending on release.”
Mr Gove has set out proposals that would amount to a radical overhaul of prisons since being appointed to the role following the election.
He has floated the idea of linking an offender’s release date to their academic performance while behind bars as he lamented the UK’s failure to reduce re-offending rates as “horrifying”.
Mr Gove has also indicated that Victorian jails could be closed and sold off to help fund an upgrade of Britain’s “out of date and overcrowded” prison estate.
A Ministry of Justice spokeswoman said: “We take the safety and welfare of these children extremely seriously.
“We are clear that children should only be segregated as a last resort, under careful control and regular review, where they are putting themselves and others at risk.
“The Secretary of State has commissioned a review of the youth justice system which will report next year.”