Some of Victoria's most vulnerable children have been targeted by criminal gangs that are luring the children into prostitution.
The ABC has reported that police have identified 30 to 40 children in state care, some as young as 12 years old, who have been abused.
The paedophile gangs seek to win the children's favour through gifts such as cigarettes, drugs, mobile phones and shopping trips before seeking sexual favours in return.
The chief practitioner at the Department of Human Services, Robyn Miller, said the offenders were expert manipulators.
"The young people that we work with have experienced such loss and grief and pain that they are really vulnerable to people giving them attention," she told the ABC.
"They are disgusting in the way that they can entrap our young people."
There are typically around 600 children in Victoria in residential care, many from abusive backgrounds who are not suitable for foster care.
A government spokeswoman said the police and the DHS were making "significant breakthroughs" in the fight to protect children from sexual exploitation and to apprehend and prosecute abusers.
"DHS reports any allegation of child sexual abuse to police. With assistance from DHS, police are proactively investigating cases where children are being sexually exploited by groups of men," the spokeswoman said.
"The department has blitzed the state with joint training for child protection workers, police and care workers in how to disrupt these criminals from exploiting young people, with 2000 people trained in 2013," the spokeswoman said.
The spokeswoman said the partnership approach would be strengthened with the introduction of new laws to prosecute people who groom children for sex, which would lead to more criminal convictions.
A Victoria Police spokeswoman said the collaborative approach between police and the DHS was established in September 2012.
She said there had been several successful investigations with offenders sentenced for child exploitation offences since then as well as a number of ongoing operations.
Community Services Minister Mary Wooldridge said the exploitation of children in residential care was ‘‘a long term, perennial issue.’’
Ms Wooldridge said she initiated a relationship 18 months ago between police and child protection services to prosecute people who preyed on the vulnerable children in out of home care.
‘‘We are also initiating earlier work to disrupt what is happening, to watch these people, to identify them ane pick them up for smaller level crimes, to stop this from happening in the first place,’’ she told ABC radio.
She said she would support an own-motion investigation into the revelations by the independent Commissioner for Children Bernie Geary.
With Henrietta Cook