Human rights advocates say compensation could be paid to the children housed in an adult Victorian jail after a judge declared the practice unlawful.
The state's highest court ruled on Thursday that keeping children in Victoria's maximum security adult Barwon Prison was against the law.
Human rights advocates who launched the latest challenge to the government's decision to house youths at the jail's Grevillea unit are now flagging possible compensation for 15 youths, some of whom have been detained there for more than five months.
In a 225-page judgment, Supreme Court Justice John Dixon said the government's decision to establish a youth justice wing at the adult prison was unlawful and declared that detaining youths there was prohibited.
He also found the limitations placed on the human rights of child inmates were not justified.
It is not clear yet whether the government will appeal what has been the third challenge to its decision to keep children at the adult jail.
The Human Rights Law Centre launched the latest legal challenge in April after the Victorian government reclassified an area of Barwon prison as a youth facility.
Teens were transferred from the trashed Parkville and Malmsbury youth justice centres in late 2016.
Hugh de Kretser, from the Human Rights Law Centre, said the government now had the chance to do the right thing and return the children to proper youth justice facilities.
"It defied belief that the only place the Victorian government could find in the whole state to house some 12, 15, at its most 28 children ... was a unit within the maximum security Barwon adult prison," he told reporters.
The youth justice system has been under heavy scrutiny after riots rendered parts of the Parkville centre uninhabitable and a mass break-out occurred at the Malmsbury centre in January.
Mr de Kretser said with repairs to Parkville almost done, up to 60 beds will return to the system.
He said many of the children moved to Barwon had nothing to do with destroying the Parkville facility, but accused the government of trying to portray that it was punishing them for it by keeping them there.
He said the government had other places to house the children but chose to leave them in Barwon, where conditions undermined their rehabilitation and were ultimately bad for community safety.
The matter returns to court Friday.
