An £85m secure college is to be built to educate up to 320 young offenders.
It will be built on land next to Glen Parva Youth Offenders Institute (YOI) in Leicestershire, and is part of a wider shake-up of youth custody.
A team of educational professionals and offender managers will be led by a head teacher at the college, with modern living blocks to accommodate the inmates.
A competition is to be launched for new organisations to bid for education contracts at the current publicly-run YOIs, as the government seeks to more than double the average of 12 hours a week education provided to up to 1,300 young offenders.
Labour says the Government has failed to explain how it would fund the new facility, due to open in 2017.
Meanwhile campaigners for prison reform say the money spent on the college would be better invested in community support for children.
Deputy Prime Minister Nick Clegg said: "We need to turn these young people into better citizens not better criminals.
"If we want to stop prisons being colleges of crime, we have to teach these kids how to do something else."
There were 1,323 young people in youth custody in England and Wales at the end of November last year.
In the 12 months ending June 2013, 6.3% of all young offenders sentenced received a custodial sentence.
For the 12 months ending December 2011, the most recent period for which figures are available, 71% of young offenders re-offended within a year of leaving custody, compared to 46% of adults leaving custody.
Frances Crook, chief executive of the Howard League for Penal Reform, said the Government had been successful at reducing the number of children sent to prison, but building a secure college would replicate "the mistakes of the past".
She said: "Privately run 'secure training centres' were designed to educate, yet they have failed to reduce re-offending and children have died within their walls."
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