The state's government will introduce legislation to raise the minimum age of criminal responsibility from 10 to 12 years, before moving to lift it again to 14 within four years.
"We want to make sure no young person falls through the cracks," Attorney-General Jaclyn Symes said on Wednesday.
She said medical evidence showed very young children were at a critical stage of cognitive development and perhaps incapable of understanding their behaviour was seriously wrong, rendering them unable to form criminal intent as defined by law.
Consultation will now start on the reforms, with the laws to be introduced to parliament this year and the age of 12 to be implemented in late 2024 with no exceptions.
The government has pledged to explore another increase to 14 by 2027, with some exceptions for certain crimes that are yet to be determined.
In the first stage, support services will help 10- and 11-year-olds and their families with problematic behaviours and the government will work with police on responses to when children of those ages engage in serious offending.
Increasing the age to 14 will be subject to the design and implementation of an alternate service model for 12- and 13-year-olds, in consultation with an independent review panel.
"Today's announcement falls short of the expectation of moving to 14 immediately but it is a great step. This is going to be nation-leading," Ms Symes said.
She and Premier Daniel Andrews have been pursuing a national approach to raising the age before federal, state and territory attorneys-general meet on Friday.
But the Northern Territory, ACT and Tasmania have adopted different policies and others are yet to be commit to changes.
"Different states have different challenges, different complexities and, frankly, different election cycles," Ms Symes said.
The United Nations, child welfare groups, medical experts, human rights lawyers and Indigenous advocates say the minimum benchmark should be no lower than 14 with no exception.
Save the Children Australia chief executive Mat Tinkler said in real terms the delay would mean 12 and 13-year-olds would still be subject to incarceration until 2027, while the Human Rights Law Centre dubbed it a betrayal of Victoria's children.
"There is nothing nation-leading or progressive about this decision," the centre's acting managing lawyer Amala Ramarathinam said.
The Victorian Aboriginal Legal Service said the staged approach was indicative of the government putting too much stock in a police union "scare campaign" instead of listening to experts.
"There is no reason that the government cannot fully implement this reform before the next election," its chief executive Nerita Waight said.
"The government has been working on this reform for almost a decade through the federal process and many inquiries and reports have provide a clear plan for implementation."
When reforms reach the upper house later this year, the Greens will push for the second rise to 14 to be legislated and sooner than 2027.
"There's no need to wait four years," Greens MP Tim Read said.
Shadow Attorney-General Michael O'Brien said the coalition wanted more details before formalising its position but had reignited concerns about gangs recruiting 10 to 11-year-olds to carry out their "dirty work".
"(The government) can't simply say we're going to wash our hands of criminal conduct of 10 and 11-year-olds and replace it with nothing," he said.
The Victorian police union has been contacted for comment.
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