One in ten children, aged one to 15, have a mental health problem, says a report from the BMA's board of science.
But mental health services are failing the most vulnerable, such as children in care and those from black and ethnic minorities, they conclude.
The board has urged the government to address problems with funding.
Around 1.1 million children under the age of 18 would benefit from support from specialist mental health services, the BMA has estimated.
Children from poorer backgrounds, children in care, asylum-seeker children and those who have witnessed domestic violence, are all at particular risk of developing mental health problems, the report says.
But vulnerable children may become stigmatised and struggle to access overstretched services.
The mental health problems covered by the report included depression, anxiety, self-harm, attention-deficit hyperactivity disorder, eating disorders and obsessive disorders.
It is estimated that 1% of children and 3% of adolescents suffer depression in any one year.
Self-harm is also on the increase with 11.2% of girls and 3.2% of boys committing an act of self-harm.
The figures suggest boys and girls tend to suffer from different mental health problems.
Gender differences
Girls tend to have more emotional disorders such as anorexia, with a higher prevalence of conduct disorders such as frequent and severe temper tantrums among boys.
The board said that government policies designed to tackle the problem, including moves to reduce child poverty, must be properly implemented.
They called for adequate funding and staffing of child and adolescent mental health teams, improved services for children in care and said racism within mental health services must be eliminated.
And teenagers aged 16 to 18 years must receive appropriate care for their age and not just be passed on to adult services, they concluded.
Dr Vivienne Nathanson, Head of BMA Ethics and Science, said: "Children from deprived backgrounds have a poorer start in life on many levels, but without good mental health they may not have a chance to develop emotionally and reach their full potential in life.
"There are a number of government policies currently being rolled out that are aimed at tackling these problems. It is essential that they deliver what they promise."
Cycle of despair
Dr Marcus Roberts, head of policy at mental health charity Mind, said: "This important report reminds us that environmental and social factors have a big effect on mental wellbeing, and also that services for young people's mental health are frequently lacking.
"It's crucial that the right kind of services are there to break what can become a cycle, wherein poverty contributes to mental distress, which in turn leads to unemployment, stigma and further poverty."
Avis Johns, YoungMinds Development Director agreed: "With the majority of adults with mental illness able to trace their symptoms back to childhood it is essential we act now to prevent a generation of children being blighted by mental ill health."
Shadow Children's Minister Tim Loughton condemned long waiting lists for child mental health services, and the fact that some young patients were being forced to spend time on adult mental health wards because specialist services were not available.
He said: "The government must take urgent action to make children's mental health services a priority.
A spokeswoman from the Department of Health said between 2002 and 2005 the number of staff working in child and adolescent mental health services increased by more than 40%, and the number of cases seen has also increased by more than 40%.
She said £300m had been invested in the service in the last three years, and experts were advising on how best to improve services.
"The Department expects local specialist commissioning groups to use this cash to finance in-patient psychiatric units which allow for effective service planning for the local population."
Source: BBC
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