Fifteen prisoners, aged 15, 16 and 17, remain in the Grevillia Unit of Barwon Prison, which the Victorian Government re-classified as a youth detention facility.
Justice John Dixon has found the incarceration breaches the teenagers' human rights through the use of capsicum spray in confined spaces, lock-downs and isolation.
"Extending up to 23 hours in cells designed for occupation by adult men - in addition some children were handcuffed during their limited periods of release from cells - there were children who were either under continuous isolation or restraint for multiple days at a time."
The juvenile offenders were transferred to the Grevillia unit last year after two youth detention facilities were trashed by inmates.
Lawyer Hugh de Kretser, from the Human Rights Law Centre, says the state government was trying to make a statement through the transfer.
"Obviously they were attempting to portray it as punishing the children for the damage to Parkville but, as we've said all along, this decision impacted on many children who had nothing to do with that damage whatsoever."
Lawyer Alina Leikin, also from the Human Rights Law Centre, says she's is especially concerned for the inmates confined to Grevillia for five months.
"We know they've missed out on education opportunities, they've missed out on family connection and these things are crucial to their rehabilitation and, in the long-run, to community safety. The government will now need to move them to a lawful place of detention."
But victims-of-crime advocate Noel McNamara opposes the decision.
Mr McNamara says he's met some of the victims of these young offenders, and believes a punitive approach would be more appropriate.
"Human rights and all that sort of business has just got to be put out of the way with these people. They terrorise people, they threaten them and tell them if you open your mouth we'll come back and get you."
The decision sparked a fiery exchange in Victoria's parliament, with the opposition calling for the resignation of defiant Youth Minister Jenny Mikakos.
"We took the steps necessary to keep the community safe, to keep our staff safe, and to keep the young offenders themselves safe."
It's not known if the Victorian Government will appeal the decision.
It now needs to decide where it will house the 15 underage detainees and, according to lawyer Hugh de Kretser, there's a very real chance the matter will now head to further litigation.
"Absolutely there's the possibility of compensation which is a normal thing that will flow when the government detains someone unlawfully."
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