A House of Lords ruling that children could not sue authorities for breach of legal duty towards them was a violation of their human rights, it said.
The case was brought on behalf of a family of five children, aged between three and 11, who claimed Bedfordshire County Council failed to protect them from severe neglect and mistreatment at the hands of their parents.
In their 1995 ruling, the House of Lords said that local authorities and social workers who had to make difficult decisions about children's welfare should be immune from claims for compensation from children if it later appeared they had made mistakes.
The Commission said this ruling breached the children's right not to be subjected to inhuman or degrading treatment and their right to a fair trial.
Its report, which willnow be considered by the European Court of Human Rights, was welcomed by the Official Solicitor Laurence Oates, who took the case to Strasbourg on behalf of the children.
He said: "I am very pleased at this recognition that local authorities can be called to account for their failure to act to protect children and I hope that the children in this case will now receive proper compensation for the abuse and neglect they have suffered."
It was also hailed by civil rights group Liberty.
Director John Wadham said: "It cannot be right that people who have been damaged as a result of negligent failures by local authorities should have no remedies at all.
"This case should lead to higher standards to protect some of the most vulnerable children that we have in this country and it should be welcomed.
"It will be an important boost to all those in public authorities who want to provide proper services and to protect children."
The House of Lords had warned if local authorities were faced with the threat of legal action they might adopt a cautious, defensive approach and delay making vital decisions on whether to remove a child from its parents.Reuse content