An £85 million "secure college" is to be built in a bid to improve the education received by young offenders as part of a wider shake-up of youth custody.
Up to 320 young offenders, aged between 12 and 17-years-old, will be housed in the facility, which is to be built next year on land next to Glen Parva Youth Offenders Institute (YOI) in Leicestershire in time for a 2017 opening.
A head teacher or principal will lead a team of educational professionals and offender managers at the secure college, which will feature modern living blocks to accommodate the inmates.
In addition, a competition is to be launched for new organisations to bid for education contracts at the current publicly-run YOIs, which will seek to more than double the average of 12 hours a week education provided to up to 1,300 young offenders.
Campaigners for prison reform said the money spent on the new secure college would be better invested in community support for children, while the Opposition said the Government had failed to explain how they would fund the new facility.
Unveiling the proposals with Justice Secretary Chris Grayling, 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.
"The Coalition has reduced the number of young people in custody.
"But re-offending is sky high in this country and the answer lies in education and opportunity to change," he added.
" Some young offenders spend less than one school day a week in the classroom.
"By increasing the amount of time young offenders spend learning, we can help them to move away from crime, take responsibility for their actions, and rebuild their lives."
The Justice Secretary added: "Nearly three-quarters of young offenders who leave custody re-offend within a year; clearly the system as it is at the moment isn't working.
"It's right that the most serious or persistent young offenders face custody but we must use this time to tackle the root cause of their offending and give them the skills and self-discipline they need to gain employment or training upon release."
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.
The youth custodial estate currently consists of YOIs, Secure Training Centres and Secure Children's Homes.
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".
"Privately run 'secure training centres' were designed to educate, yet they have failed to reduce re-offending and children have died within their walls," she said.
"Building a larger version of this failed model and calling it a 'fortified school' will lead to more crime and increased costs.
"Indeed, the definition of madness is to do the same thing again and again and expect a different result.
"The millions of pounds spent on this new facility would be better invested in community support for children and recognising the reality of why children offend."
Legislation will shortly be introduced to create secure colleges as a new form of youth detention accommodation.
In the meantime, private firms and charities will bid for education contracts at existing YOIs, which have 1,311 beds combined.
Education in YOIs is delivered by private sector providers under separate contracts, which end this year.
The Government wants to open up the contracts to a broader range of providers as it moves to increase the number of hours of education within YOIs.
In 2012/13 the Ministry of Justice and Youth Justice Board spent around £247 million on the detention of young offenders.
The average cost of a place ranges from £65,000-a-year in a YOI to £178,000-a-year at a Secure Training Centre and £212,000-a-year at a Secure Children's Home.
Sadiq Khan MP, Labour's shadow justice secretary, said: " This announcement is an admission of failure from Nick Clegg and Chris Grayling.
"Building the secure college won't even begin until after the next general election.
"Education is crucial in reforming criminals but building one new establishment in the future will do little to reduce the re-offending rate across the rest of the country.
"The Government has also failed to explain how much their plans will cost nor how they will be funded, leaving fears that other parts of the youth justice budget will be cut to pay for it."
Juliet Lyon, director of the Prison Reform Trust, said: "The good news is that over the last few years, local and national government have succeeded in helping young people out of trouble, reducing youth crime and more than halving the child prison population.
"Now it's worth investing in our most troubled young people before they become the adult prisoners of the future.
"Too often, young offender institutions have been little more than colleges of crime.
"While education is vital, provision for young people must take account of mental health needs, learning disabilities and addictions.
"Small, local, intensively staffed units with a focus on taking responsibility, making amends to victims, gaining skills for employment and having a safe home to go to will cut crime far better than putting hundreds of teenagers together in over-large institutions."