When housing costs are stripped out, the absolute poverty level was also up 300,000 to 2.6 million children (20%) in 2011/12, while relative poverty - defined as living in a household with 60% of median average income - stayed stable at 3.5 million children (27%), or 2.3 million (17%) if housing costs are not included.
Oxfam said the figures were unacceptable and called on ministers to stop "squeezing the purses and wallets of the poorest", while Barnardo's said the Government was failing to protect families living "at the tipping point between hardship and crisis".
But Work and Pensions Secretary Iain Duncan Smith pointed to figures showing that the number of children in workless poor families has reduced by 100,000 children over the past year - a two percentage point reduction.
Mr Duncan Smith has ordered a review of the official method for calculating poverty, arguing that the mathematical link to average household incomes is "arbitrary" and should be replaced by more meaningful measures reflecting the importance of factors such as work, education, health and freedom from addiction in improving families' standard of living.
But Alison Garnham, chief executive of Child Poverty Action Group, said: "Despite all the talk about 'scroungers' and generations of families never working, today's poverty figures expose comprehensively the myth that the main cause of poverty is people choosing not to work.
"The truth is that for a growing number of families work isn't working. The promise that work would be a route out of poverty has not been kept as wages stagnate and spending cuts have hurt low-income working families. The frightening truth is that this is the calm before the storm. New analysis from the Institute for Fiscal Studies suggests we face a massive surge of 1.1 million more children in poverty by 2020 coalition's tax credit and benefit cuts."
Barnardo's chief executive Anne Marie Carrie said: "With the number of children in absolute poverty rising to a worrying 3.8 million, and those in relative poverty set to follow suit, the Government is clearly failing to protect those UK families who live at the tipping point between hardship and crisis.
"The families that Barnardo's works with tell us they're already budgeting on a shoestring, squeezed by the rising price of essentials and high childcare bills. This year many of these households will be pushed into financial chaos when the cap on benefits increases take effect, compromising the health and life chances of children as they are forced to grow up in poverty."