Research says law places local authorities in an impossible position.
Barnardo's and the Refugee Children's Consortium have highlighted the "incompatibility" of UK asylum law with child welfare legislation in a new report targeted at parliamentarians.
"This is a legal balancing act," explained Nancy Kelley, co-author of the research and head of UK and international policy at the Refugee Council.
"Local authorities have been put in an impossible position of trying to balance their very clear duties to do what's best for children with asylum and immigration legislation that now says they cannot do what they know to be best."
The End of the Road has been produced as a follow-up to extensive lobbying based around section 9 of the Nationality Immigration and Asylum Act, which was passed last year.
The section permits local authorities to minimise or remove the welfare entitlements of families who have made unsuccessful asylum applications and who have "failed to take reasonable steps" to leave the UK. It was introduced by the Government to encourage families to return home voluntarily after their asylum bids have come to an end. A pilot scheme was set up in areas of London, Greater Manchester and West Yorkshire in December last year.
"You have got two standards here," said Kelley. "One is section 9, which says you can support the children but you can't support the families unless their human rights are breached.
"In contrast you have the Children Act. It imposes a direct obligation to do what's best for children, which is a completely different standard because what's best for children is to be raised in their families."
Kelley's research suggests children could be taken away from their families and put into care, creating legal difficulties for local authorities under child welfare law.
Barnardo's and the Refugee Children's Consortium have presented their findings to the Home Office and the all-party parliamentary groups on children and refugees, with the aim of securing a repeal of the section.
Kelley says the movement is hopeful that a robust debate on the issue will take place in the House of Lords.
The movement has also gained the support of Peter Gilroy, chair of the asylum task force at the Association of Directors of Social Services.
Gilroy responded to the research by saying section 9 "appears to be a piece of legislation that will induce chronic legal challenge".
- All the 33 local authorities interviewed consider section 9 of the Nationality Immigration and Asylum Act to be "wholly incompatible" with the 1989 Children Act
- Local authorities fear they could leave themselves open to judicial review
- Barnardo's and the Refugee Children's Consortium believe different approaches in different areas could lead to a "postcode lottery".