The report by a coalition of leaders from Christian churches criticises how unaccompanied asylum-seeker children are kept in immigration detention.
"These children are held like animals in conditions that are inhumane, interrogated without support or representation, shipped around the country and offshore in the middle of the night, and denied basic rights, including education," Anglican dean Peter Catt, who chaired the Australian Churches Refugee Taskforce, said.
"Given that the government continues to ignore irrefutable independent evidence from health and legal experts about the plight of these children we have no hesitation in labelling this what it is -- state-sanctioned child abuse."
Asylum-seekers arriving in Australia by boat have long been held in detention while their claims for refugee status are assessed.
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Under the hardline immigration policy introduced in mid-2013, these asylum-seekers are now sent to camps in Papua New Guinea and Nauru.
They are also barred from being resettled in Australia even if their refugee claims are found to be valid.
Morrison's spokeswoman said the allegations from the taskforce, which includes members from Anglican, Catholic, Salvation Army, Uniting Church and other denominations, were "shocking and offensive".
"The government takes the protection of children very seriously and is committed to ensuring they are protected from exploitation and abuse.
"Allegations of state-sanctioned child abuse are an insult to all both in and outside of government who care for these young people."
The government was reducing the number of children in detention, she said.
The latest immigration department figures show 193 children are held on Nauru. A further 699 are kept on Christmas Island or in other places on mainland Australia.