Australia is facing increased pressure to reform its immigration system after a report showed more than a third of children detained under those policies had developed a mental illness requiring psychiatric care.
The Human Rights Commission's inquiry into onshore and offshore detention centres also found nearly 300 instances of actual or threatened self-harm among roughly 800 children also in the camps between January 2013 and March 2014.
The report, The Forgotten Children, also called for all children to be released from mainland detention and from the detention centre on Nauru after examining hundreds cases of assault against children, including and more than 30 incidences of sexual assault.
The Australian government has been criticised at home and abroad for its tough immigration policies.
Those include sending asylum seekers and their children to camps in Papua New Guinea and Nauru, where they face long periods of detention while their applications are processed.
But the report said there appeared to be no rational explanation for prolonged detention of the asylum seekers children and called for a government investigation.
It said the mandatory and prolonged immigration detention of children is in clear violation of international human rights law.
It recommends setting up a royal commission to investigate the long-term effects of detention on children's physical and mental health, and remedies for any breaches of the rights of children that have been detained.
It is one of 16 recommendations in the most comprehensive inquiry in a decade into the policy of detaining asylum seeker children who arrive in Australia by boat.
The Federal Opposition and the Greens are calling for significant changes to Australia's immigration detention network in the wake of the damning report.