Hundreds of children held in immigration detention on the Australian mainland are to be released into the community.

News Corp Australia reports that a federal government plan to halt the incarceration of asylum seeker children will involve their families, who were detained under the former Labor government, being allowed to settle in the community on bridging visas while their refugee applications are processed.

The new policy will potentially apply to 1547 children aged younger than 10 being held in community detention housing or on bridging visas but for whom a community detention place had not been available because of a lack of facilities and services.

It will also be available to 150 children still being held in immigration detention centres such as Villawood in Western Sydney.

The Daily Telegraph says the majority of the children are expected to be released into the community by the end of the year.

Immigration Minister Scott Morrison says the government was unable to release the children earlier due to a lack of community detention facilities.

The new arrangements are likely to save about $50 million in detention costs.