Young offenders could serve their sentences in "secure schools" rather than prisons under a radical overhaul of youth custody.
Proposals being considered by ministers would see criminals aged under 18 placed in "more therapeutic" settings with a greater focus on education and preparing them for life in the community.
David Cameron confirmed the Government will explore using processes for establishing free schools to set up secure academies for young offenders.
The Prime Minister said: "In short, this will mean turning existing young offender institutions (YOIs) into what will effectively be high-quality schools that will demand the highest standards."
The plan is based on recommendations from a review of youth justice ordered by the Government last year and carried out by former headteacher Charlie Taylor.
His interim findings, which will be published on Tuesday, suggest the system would be more effective and better able to rehabilitate young people if education was at its heart.
There are currently five youth offender institutions and three secure training centres for young people in England and Wales.
Under the proposals these would be replaced with secure schools which will help children master the basics in English and Maths and provide high quality vocational education "in a more therapeutic environment".
Youngsters would stay at them full-time for the duration of their sentence.
It is part of a number of measures being considered by the Government to drive down re-offending rates.
The review found that the number of children in custody has fallen by almost two thirds in the last decade, reaching the lowest recorded level.
In 2014/15 the population stood at 1,048 and is currently below 1,000 but two in three children commit a new offence within a year of being released.
Mr Taylor's report found that around 40% of those detained in YOIs have not been to school since they were aged 14, while nearly nine out of 10 have been excluded from school at some point.
Children in YOIs are only receiving 17 hours of education every week, compared to an expected level of 30 hours.
Mr Taylor is also expected to recommend giving local areas greater say in the way children are managed by devolving responsibility, control and money from Whitehall.
He said: "Since beginning this review, I have been hugely impressed by the expertise and dedication of so many people who work with some of the most difficult and troubled children in the country.
"I am, however, convinced the youth custodial estate must be reformed to give children the support and education they need to become successful adults.
"Education is important for all children, but for those involved in offending it is vital. We need a resolute focus on giving children in trouble with the law the skills, qualifications and aptitudes to lead successful, law-abiding lives."
Justice Secretary Michael Gove said: "I am in no doubt that our system of youth justice needs reform.
"Although youth offending is down, recidivism rates are high, and the care and supervision of young offenders in custody is not good enough."
Lord McNally, chairman of the Youth Justice Board, said: "This report includes many of the reforms the YJB advocates, including the creation of small, locally delivered custodial establishments, which focus on education."