The youth justice system is in meltdown, officials warned yesterday, as it emerged that 3,350 young people are now in custody - leaving a handful of beds available.

In a joint statement the chairman of the Youth Justice Board, chief inspector of prisons and children's commissioner urged the courts to make more use of community sentences, arguing that higher numbers made rehabilitation tougher.

Rod Morgan, chairman of the YJB, warned: "We can't put up a sign saying 'no vacancies'. Action is urgently needed."

The Home Office said that of 190,000 young people dealt with every year, only 4% were jailed. The government recently introduced intensive supervision orders to toughen up community sentences.

Professor Morgan said: "I have never met a sentencer who doesn't feel a young person in custody should be an absolute last resort. But a last resort today is substantially lower than 10 to 15 years ago."

He argued that twice as many children were locked up as a decade ago, despite the fact that the British Crime Survey recorded a 44% decline in crime and no evidence of an increase in the proportion of crime committed by young offenders.

Anne Owers, the chief inspector of prisons, added: "Every time I go into a custodial establishment, I see staff achieving amazing things in difficult circumstances with highly troubled young people.

"I am particularly concerned about the number of young people with mental illness who end up in our prisons because of the lack of adequate provision outside."

The YJB said the rising number of children in custody had increased the numbers sharing cells and being bussed around the country, contravening rules that they should not be held more than 50 miles from home. It said that in some cases young offenders from London - including those on remand - were being held in South Yorkshire and the Scottish borders, far from lawyers and families. It argues that the high numbers increase the risk of self-harm and suicide, make it harder to run rehabilitation programmes, and increase the risk of poor discipline.

Martin Narey, chief executive of Barnado's, argued that more children were being locked up because of the introduction of antisocial behaviour orders. Breaches are punishable with custody.

But a Home Office spokesperson said that most young people jailed for breaches of Asbos had also been convicted of other offences. She added: "Public protection is our priority and we support tough sentences for those judged to be a danger to the public.