A joint inspection report by HM Inspectorate of Prisons and HM Inspectorate of Probation details how young people do not have appropriate accommodation or training, education or employment arrangements in place.
They are also being released into the community lacking mental health support, according to the report on the resettlement work carried out by young offender institutions (YOIs).
In addition, the inspection found inadequate planning to ensure the protection of others, including young people's families and younger children.
It has emerged that 14 per cent of children released in the first three months of 2019 did not even know where they would be living after leaving custody.
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Some 38 out of 50 children did not have education, training or work arranged when they left.
Also, 27 out of 50 children did not have suitable services to address their health needs, including mental health.
The report highlights the case of an 18-year-old offender who had been detained for 16 months for dangerous driving.
He has bipolar disorder, had attempted suicide and had support from a mental health worker in custody.
However, he was released without clothes that fitted him, no benefits or bank account, and no mental health support.
Too often, YOI staff focus on immediate needs and risks related to being in custody rather than when children are released, inspectors found.
"Not enough thought was given to their future, and how the resettlement work prepared them for that," states the report.
"Of concern, they did not consider sufficiently often the risk to others that the child might pose on release.
"There was often a view that that was the remit of external agencies, and that resettlement really started on the day of release.
"Simply referring children to outside agencies, towards the end of the custodial period, has been deemed by too many internal health and education, training and employment providers to constitute adequate resettlement work. It does not."
In a joint statement Peter Clarke, chief inspector of prisons, and Justin Russell, chief probation inspector, said: "We saw some examples of excellent resettlement work which offered children the best opportunities to change their lives and successfully reintegrate into their communities."
A common feature of the good examples was a "team around the child" approach in which professionals worked together across agency boundaries.
"More often, though, we found that, while children were in custody, there was not enough productive resettlement work; this had detrimental consequences for them when they were released," adds the statement.
"The most damaging outcome was a lack of suitable accommodation identified in time for other services to be in place."
Among examples of good resettlement support was the case of a teenager who was helped to complete an exam in numeracy following his release from 18 months' detention for robbery.
The boy, who was 16 when sentenced, was also given ongoing support from a youth offending team drugs worker.
The inspection surveyed 600 children in custody, analysed data involving 115 children who were released from a YOI and looked in detail at the resettlement of 50 children, aged under 18 between October 2018 and April this year.
Frances Crook, chief executive of the Howard League for Penal Reform, said: "The inspectors' findings are in line with what the Howard League sees through its legal work time and again - children are being let down and set up to fail.
"Rushed resettlement makes children feel unloved and uncared for."
Campbell Robb, chief executive of crime reduction charity Nacro, added that offenders are "not being given the best chance to lead a different life".
"We cannot afford for them to be held back by homelessness, a lack of mental health support, or a lack of access to training, education or employment support, as these are essential basics needed to help young people build a new life in their communities and with their families," continued Robb.
The report echoes the findings of HMI Probation in 2015, that life chances of children leaving custody were poor, in particular in areas such as housing and education.
According to latest Ministry of Justice figures, 70.3 per cent of children reoffend after leaving custody for sentences of less than 12 months.
The reoffending rate for children leaving custody after serving a sentence of more than a year is 57.4 per cent.
Five YOIs can hold children under the age of 18 in England and Wales.
These are Feltham A in London, Cookham Wood in Kent, Werrington, near Stoke-on-Trent, Wetherby and Keppel in North Yorkshire and Parc in Wales.