Children responsible for harmful sexual behaviour are too often treated as "mini sex offenders", according to a new report.
They should be considered as children "first and foremost" and not unnecessarily criminalised, the study argued.
It also warned easy access to pornography and "pervasive sexualised content" has created new challenges for keeping youngsters safe.
They were among the conclusions of a parliamentary inquiry, which was supported by charity Barnardo's.
The report said children who sexually abuse other children have often already suffered abuse and trauma themselves.
It added: "In other cases, children make mistakes as they start to understand their sexuality and experiment with it.
"These children are unlikely to pose further risk to the public, given appropriate support, but unnecessarily criminalising or stigmatising them as a 'sex offender' at such a young age makes it more likely that they will struggle to regain a normal life, and increases their propensity to re-offend."
While in the most serious cases a criminal justice response is inevitable, the report said, all those in this situation must receive "high quality therapeutic support".
Although public protection should always remain the "primary driver" when dealing with cases, young offenders should be "treated as children first and offenders second", according to the paper.
The inquiry used a description of harmful sexual behaviour as covering instances children and young people "engage in sexual discussions or activities that are inappropriate for their age or stage of development, often with other individuals who they have power over by virtue of age, emotional maturity, gender, physical strength, or intellect and where the victim in this relationship has suffered a betrayal of trust".
Activities could range from using explicit words and phrases to sex with other children or adults.
There is no definitive data on the scale of the issue, but figures released following a Freedom of Information request suggested that more than 4,200 children and young people were reported as perpetrators of sexual abuse in 2013/14.
Barnardo's chief executive Javed Khan said: "We must remember that many children who show harmful sexual behaviour have experienced or witnessed physical, emotional or sexual abuse as well as neglect and can be extremely vulnerable.
"Automatically treating them as mini sex offenders prevents them being rehabilitated and living positive lives.
"In some cases a criminal justice response may be necessary, but we have to find a much better way to stop children abusing themselves and each other."
He said it is imperative that children receive high quality, age appropriate information and advice about healthy relationships. They also need to understand what sexual conduct is illegal, such as sexting, Mr Khan added.
The report said the Government should work with relevant partners to develop a national strategy for preventing and responding to harmful sexual behaviour in children.
Conservative MP Nusrat Ghani, who chaired the inquiry, said: "The key to this little understood problem is prevention and protection, so the Government must work with schools, local authorities, police and voluntary organisations to tackle it.
"In this smartphone age, parents must also play a vigilant role in protecting their children from harmful sexual behaviour and from harmful sexual images that cause damage they are too young to understand."