The decision by the New South Wales government to ban the use of Alternative Care Arrangements for vulnerable children has been welcomed by the peak organisations for Aboriginal children and families in the state.

The decision, announced on Tuesday during Child Protection Week, comes after a report by NSW Advocate for Children and Young People, Zoë Robinson, found many at-risk children have been placed in profit-driven care arrangements for a significant period — some as long as 600 days.

Children gave evidence of their experiences in hearings across the state, with the report highlighting shocking cases of neglect, sexual assault, and children being exposed to rampant drug use whilst being placed in Alternative Care Arrangements (ACAs).

In the last ten months, the number of children in ACAs has dropped from 139 to 39, and Minister for Families and Communities Kate Washington said she has made it clear that "vulnerable children do not belong in hotels, motels or caravan parks with shift workers instead of foster carers".

"Under our government, unaccredited emergency accommodation will become a thing of the past, which is long overdue," she said.

AbSec chief executive John Leha said it was a "long-overdue shift" in policy towards a system that prioritised the wellbeing of children - especially Aboriginal children - who have been "grossly overrepresented in unsafe ACA placements. No child should be left in environments that undermine their cultural safety and identity".

Aboriginal children made up almost half of those placed in ACAs, with AbSec noting this followed the removal from family, culture, and community.

Last month, Aboriginal Legal Service (ALS) NSW/ACT chief executive Karly Warner said "children belong safe at home, not forced to live in motels with a rotating cast of strangers playing the role of parent".

"Many Aboriginal families are devastated [that] their children are forced into hotels and caravan parks rather than growing up connected to family, culture and community," Ms Warner said.

ALS noted the Department of Communities and Justice (DCJ) "removes Aboriginal and Torres Strait Islander children from their homes at over 12 times the rate of non-Indigenous children".

Many First Nations children did not exit ACAs to other types of care placements but resorted to 'self-placing', labelling this "particularly concerning" and a "cry for help".

"The decision to self-place is not taken lightly by these children; it is often an act of survival, driven by a desire to escape the systemic neglect and isolation they experience in ACA settings," AbSec said.

They argued that whilst it may seem like an empowered choice, it often left children vulnerable and without access to proper support systems, as well as making them susceptible to further instability, exploitation, or harm.

"Self-placement exposes the reality that for many children, especially Aboriginal children, the so-called care system is failing," Mr Leha said.

"Rather than providing a nurturing environment, it has become something they feel they need to escape from. These children are seeking out connections to their culture, their family, and their identity because those are the very things that have been taken from them."

AbSec stressed the importance of "culturally-grounded, trauma-informed support" for children who have experienced and been placed in the ACA system.

"It is not enough to simply remove children from unsafe placements," Mr Leha said.

"We must now invest in providing culturally informed, therapeutic care for each child who has experienced or is exiting an ACA for as long as that care is needed."

ACAs cost the NSW taxpayer $500 million over the last six years—close to $2 million per child, per year.

The NSW government said they are provided by "unaccredited agencies with limited government oversight who are not required to meet the NSW Child Safe Standards for Permanent Care".

"The former government let the child protection system spiral out of control, and the use of these emergency accommodation providers for vulnerable children skyrocketed," Minister Washington said.

Mr Leha said investment must be focussed on the "healing power of strengthening connections to culture, family and community for children who have experienced traumatic dislocation".

"AbSec stands ready to work with the NSW Government to transform the child protection and care system so that community can build responses that are grounded in culture, strengthen families and enable our children to grow and thrive," he said.