The Salvation Army says it's no longer able to offer care for the children because it isn't getting enough money from the government to properly support the program.
The head of the Salvation Army's state social program and policy unit, Jason Davies-Kildea, says it takes an extra $500,000 a year of the organisation's own money to run the units, a figure it can no longer afford.
"We're certainly hoping that by handing back the units it will draw a level of serious attention to the issue that we've been trying to talk about for a long time."
Mr Davies-Kildea, says The Salvation Army has only received a fraction of the funds needed from the Victorian government to continue providing support to the children in its care.
"We've been discussing this with the state government for some time. Last year they offered us increased funding but only to a quarter of the costs and in the current year, they've offered us even less. So our response is that we have to hand back the units," says Mr Davies-Kildea.
That decision by the Salvation Army follows comments made earlier this year by Victoria's Auditor-General John Doyle, who said the needs of children living in residential state care were being compromised because the system is overstretched.
Listen: Anglicare Australia CEO Paul McDonald speaks to SBS reporter Peggy Giakoumelos
Residential care is often a last resort for children unable to live with their parents due to abuse or neglect, with the Department of Human Services estimating that about 500 children a year need residential care in Victoria alone.
Paul McDonald is the CEO of Anglicare Australia and agrees that the base price of running residential care facilities in Victoria needs to be adjusted.
He says this group of children are unable to remain in kinship or foster care due to circumstances such as impaired mental health, as well as acting out and self-care issues.
"We're requiring this model of care to look after them. This doesn't come cheaply though to have staff on 24 hours, seven days a week, you need to pay for that," he says.
In March this year the Victorian State government announced it will pump $128 million into out-of-home care services to help children and young people living in state care.
It's part of a five year plan that will see an increase in residential care beds as well as increased support for other options such as foster care.
Anglicare's Paul McDonald says he would like to see the federal government step in and also provide more support for foster care, the preferred option to residential care.
"The federal government could assist a long way in foster care by adjusting their treatment of foster carers, in relation to Commonwealth benefits and other Centrelink payments," he says.
