Australia's policy of holding children of asylum seekers in island immigration detention camps violates international law, the government's human rights watchdog found.

An Australian Human Rights Commission report released late Wednesday called for the speedy release of children from detention and a judicial inquiry into the treatment of detained children.

But Attorney-General George Brandis told Parliament that his government rejected the report's findings.

Australia detains asylum seekers who pay people smugglers to boat them from Indonesia in immigration detention camps on the remote Australian territory of Christmas Island and on the impoverished Pacific island nations of Nauru and Papua New Guinea.

The policies of refusing to allow boat arrivals to every settle in Australia and to turn some boats back to Indonesia has almost stopped the trafficking of asylum seekers from the Middle East and Asia to Australia.

The commission's 10-month inquiry found prolonged and mandatory detention caused significant mental and physical illness.

Hundreds of assaults against children were reported and 128 teens harmed themselves between January 2013 and March 2014.

More than one third of children had serious mental health problems.

"The mandatory and prolonged immigration detention of children is in clear violation of international human rights law," the report said.

The commission wants the government to ban indefinite detention, close the "harsh and cramped" Christmas Island camp, get children off Nauru and appoint an independent guardian for unaccompanied minors.

Immigration Minister Peter Dutton said in a statement some of the report's recommendations "would mean undermining the very policies that mean children don't get on boats in the first place." he said

Numbers of children in immigration detention peaked at nearly 2,000 in mid-2013 but were now down to 162.

London-based rights group Amnesty International said the report made it clear that all children and their parents must be released from detention. (***)