The new approach will focus on engaging with families during the decision-making process and giving parents the opportunity to help decide when and how they return.
An independent family returns panel will also be set up in an attempt to ensure that child welfare and safeguarding issues are central to individual family return plans. It will be made up of an independent chair appointed by the Home Secretary and other independent experts.
"Today marks an enormous culture shift within our immigration system," Deputy Prime Minister Nick Clegg said. "The coalition government has always been clear that the detention of children for immigration purposes is unacceptable.
"We are placing the welfare of children and families at the centre of a fairer and more compassionate system.
"In recent years we have seen hundreds of children, who have committed no crime, locked up in detention centres. Today we show how we will ensure it never happens again."
Barnardo’s chief executive Martin Narey said: "The end of child detention at Yarl’s Wood is a hugely significant event.
"Locking up children when they have committed a crime is difficult enough. Incarcerating them simply because they have parents who wish to live here was unnecessary, expensive and more to the point, just plain wrong."
He added that continued use of supervised accommodation for brief periods as a last resort for those families who refuse to leave the UK is a "small and necessary price to pay for the prize of closing Yarl’s Wood".
Maggie Atkinson, children's commissioner for England, said: "I am enthused this review now lays out a clear path to end the detention of children for immigration purposes. The closure of the family unit at Yarl's Wood Immigration Removal Centre is good news for children and young people.
"While this is a major step we will continue monitoring progress and working with the government to ensure children are treated properly while in the asylum system."
Professor Carolyn Hamilton, director of the Children’s Legal Centre, welcomed the announcement but voiced concerns over delays in abolishing the current detention system.
"The proposals for secure and supervised pre-departure accommodation appear to be detention by another name," she added. "Holding children in accommodation from which their parents are not allowed to leave for up to a week may prove just as psychologically damaging as other forms of detention.
"If we are to have the ‘most child-friendly immigration system in the developed world’ as Nick Clegg has promised, there is still a long way to go. Rebranding detention is not the same as ending it."
Statistics released in the House of Lords last week revealed that 210 children entered immigration detention in the six months to the end of October this year.According to the government, there are currently no children in detention in the UK.