Those caring for the state's most vulnerable warned the government only last week that children in care were at risk due to inadequate funding, with many residential units being run by just one worker.
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The revelations follow reports that 30 to 40 children in state care, some as young as 12, have been abused by criminal gangs who have lured them into prostitution.
The Centre for Excellence in Child and Family Welfare, writing on behalf of those who look after 90 per cent of Victorian children in residential care, demanded an urgent meeting with the Department of Human Services to discuss concerns about an ''unsustainable'' tender for four residential units.
''Placing up to four often deeply troubled and traumatised young people under the care of a single staff member … is questionable practice and compromises our shared obligation to meet the safety, stability and developmental needs of these young people,'' a leaked copy of the letter of March 5 reads.
Community Services Minister Mary Wooldridge came under fire from the opposition in State Parliament on Wednesday, accusing her of keeping the public in the dark about ''horrific crimes''.
Ms Wooldridge, whose future is uncertain after she lost pre-selection for the seat of Kew, said the exploitation of children in residential care was ''a long-term, perennial issue''.
She said police and child protection workers were trained to identify the exploitation.
''We have very vulnerable children and young people in out-of-home care who've been neglected and abused and they are targets of organised gangs,'' she said.
It is understood that while opportunistic men have been preying on such children for decades, they have been much more organised in recent years.
One source with years of experience in child protection said paedophiles sent younger people who ''presented better'' to the units to lure out the children.
Another said children in care were using mobile phone apps to send pornographic photos of themselves to older men.
The independent Commissioner for Children, Bernie Geary, has begun an investigation into sexual assault and in out-of-home care. It will look at sexual exploitation, child-on-child sexual assaults and sexual assault by outsiders.
''These vulnerable children are targeted by swill who basically look for children who are less likely to offer any resistance,'' Mr Geary said
Anglicare Victoria chief executive Paul McDonald said the funding arrangements did not ensure the safety of children, and called for more educational and recreation opportunities.
Berry Street chief executive Sandie de Wolf said technology had made it much easier for paedophiles to contact children living in care. ''They give the kids phones to contact them. These children are desperate to have adults who love them and believe in them.''
Centre for Excellence in Child and Family Welfare chief executive Deb Tsobaris said a lack of funding for some residential units meant vulnerable children were not receiving proper supervision, with about half of the units run by only one staff member at any one time during the day and night. She called for the units, which house up to four children, to be run by two staff members at all times.
''There is only one carer working, so if a child leaves at 11 at night and doesn't come back they can't leave the house to find them.''
A police spokesman said a collaborative approach between police and the DHS was established in September 2012, and there had been several successful investigations.
National Children's Commissioner Megan Mitchell said resources had to be allocated so vulnerable children did not end up in residential care. She said there were more than 40,000 children in care in Australia, a 27 per cent increase since 2008.
With Craig Butt and Aisha Dow
