A report by the All Party Parliamentary Group (APPG) on a Fit and Health Childhood found that attempts to reform child mental health support are impeded by a lack of collaboration across government departments.
It calls for the new department to be led by a secretary of state for children and to be held to account by a new select committee.
The call comes eight years after the old Department for Children, Schools and Families (DCSF), which was set up in 2007 by the then Labour government, was scrapped and replaced with the Department for Education.
The APPG, made up of MPs and peers, said the creation of a new department, specifically concerned with children is necessary to ensure child mental health policy is effectively co-ordinated and audited across government.
"The current system of child mental health is funded, commissioned and supplied by many differing organisations," the report states.
"Lack of collaboration and fragmented care, waiting list pressure and the infrastructure of allocated funding all add up to a child mental health service currently in crisis."
The report adds that children's mental health should be "designated a national priority necessitating co-ordinated action across all government departments".
It also calls for a new inter-departmental group on children's health, including external experts, to be established.
Last September a group of 50 Tory MPs and peers called for a similar departmental overhaul for children's policy, through the creation of a cabinet-level families minister post.
The group, that includes former Education Secretary Nicky Morgan, also stressed the need for ensure better co-ordination of policy across departments.
In 2013 former children's minister Tim Loughton said that overseeing children and families issues had become a "declining priority" within the DfE.
The DCSF's replacement with the DfE garnered criticism at the time from children's professionals and mental health campaigners.
The APPG's report also calls on the government to rethink its green paper on children's mental health, which was published last December and pledged £300m to provide support in schools.
The APPG describes the green paper as "flawed" and puts forward a raft of recommendations to improve it. This includes a stronger focus on early intervention rather than later stage crisis support and the creation of a national in-school counselling service staffed only be accredited counsellors.
All teachers and children's professionals should also have compulsory training in dealing with the mental health of children and young people.
The green paper's recommendation that schools be incentivised to appoint a designated mental health lead to co-ordinate support also needs to be bolstered by guaranteed remuneration for those taking up the role.
APPG chair Baroness Floella Benjamin said: "We welcome the green paper and some of its core recommendations such as early intervention and counselling services in schools, but green papers are necessarily ‘works in progress'.
"Our report shows that there is much more to do."
She added that this "challenging policy area should be supported by new initiatives and co-ordination across government".
"The 'new initiative' that we propose is the creation of a department for children, headed by a secretary of state with responsibility for cross-departmental audit and held to account by a new select committee," she added.
Tom Madders, director of communications and campaigns at YoungMinds said: "Every day we get calls to our helpline from parents whose children have been waiting months for an appointment with child and adolescent mental health services, or who have been turned down because the thresholds for treatment are so high.
"The system is overstretched and disjointed, and this is having a devastating impact on thousands of families across the country.
"This report rightly draws attention to the need for increased, long-term funding for children's mental health services, as well as for a rebalancing of the education system to ensure a greater focus on wellbeing.
"We also need to see better coordination at policy level and more joined-up services across the board. The government's green paper is a step in the right direction, but there is still a very long way to go."
Annamarie Hassall, director of practice and programmes at the National Children's Bureau said: "Ultimately, children's needs should be championed in government decisions in all areas, from health services and support for carers, to housing and poverty.
"This requires cooperation and collaboration at both a national and local level and is something the National Children's Bureau promotes in all its work. The creation of a department for children could be a step towards closer joint-working and keep all parts of the system focused on better outcomes for children."
The DfE has been contacted for comment.
There are places remaining at CYP Now's Mental Health in Schools conference, taking place this Friday, 29 June. See who's speaking here.