Research carried out by the University of East Anglia's Centre for Research on the Child and Family found that social media provided a "window to life before being in care" and helped looked-after young people deal with the "stigma and shame" they felt about being in care.
Not only was the use of social media helpful for young people living in care to maintain healthy and appropriate birth family relationships, but it also eased transitions between placements, the report said.
Being part of an online community is also useful in tackling problems such as homelessness among young people transitioning from care - by providing access to support networks to help them find housing - as well as providing opportunities for their personal progression, the report adds.
The study, based on more than 100 visits across seven months to 10 young people aged between 14 and 18 across four residential care settings in England, highlighted the importance of digital networks in increasing self-esteem and mental wellbeing.
Lead researcher Dr Simon Hammond carried out in-depth observations on the sample group about how they routinely used social media in their everyday lives as well as conducting focus groups and interviews with both the young people and residential care staff.
"The young people we worked with talked about how many friends or followers they had on social media," he said.
"It was the contacts outside their immediate state care environment that young people saw as their most precious commodity."
Hammond said the psychosocial support gained from using social media was particularly important in tackling feelings of depression, isolation and worthlessness frequently reported by young people in care.
"Young people in care face harder, faster and steeper transitions into adulthood with fewer resources than their peers," he said.
"Placement instability often leads to young people feeling abandoned and isolated at points in their lives when they are at their most vulnerable," he added.
The study also showed that while social media gave young people in care the chance to network with organisations that could help them with opportunities for personal progression, many were not always keen to "like" or "follow" them for fear of highlighting their own care experience, leaving them vulnerable to stigma.
Hammond said that social care professionals should adopt a "digital resilience informed approach" which recognised potential vulnerabilities while supporting young people to engage in online networks.
"This is important as our research reveals that social networks need to be viewed as an important resource for psychosocial support and that the risks shift as young people mature and progress towards independence," he said.
Andy Burrows, associate head of child safety online at the NSPCC, welcomed the findings but urged vigilance among social media providers that their sites are safe for young users.
"This valuable piece of work makes clear the benefits of social media for looked-after children," he said.
"However, social networking carries risks as well as benefits and there is a responsibility on social media sites to make their platforms safe for their young users, including looked after children who can often be particularly vulnerable, so that they are free to enjoy the online world."
The research, which is due to published in the British Journal of Social Work, has been released ahead of Safer Internet Day on 6 February.