In a submission to an upper house committee, the Victorian Aboriginal Legal Service said it supported a pilot program of pre-charge cautioning at Bendigo, Echuca and Dandenong but more was needed for it to succeed.

"Cautioning more Aboriginal children, and involving Elders in this process, would be a positive step forward," it stated.

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The legal service said it had high hopes for the pilot program because of its ability to help vulnerable young people - many in out of home care - to be diverted from the criminal justice system.

Statistics have shown that when cautions go down, arrests go up for Aboriginal youth and the figures worsened sharply between 2008 and 2015.

"Snap decisions by police regarding cautioning can have lifelong and devastating impacts for children; children who have often been let down by multiple systems," it said.

The cautioning rate for Aboriginal children and young people in Victoria declined from 14.6 per cent of outcomes in 2008 to 3.9 per cent in 2015.

Chief executive officer Nerita Waight of the Victorian Aboriginal Legal Service said she supported Victoria Police's intention to change its policy in favour of cautions, but legislation would create a better safety net for kids.

"Victoria Police are much less likely to give cautions to Aboriginal kids than non-Aboriginal kids, which means more of our children being arrested and detained over minor charges," she said.

"Police too often squander opportunities to support Aboriginal children and help strengthen their connections to their community and culture. Kids may have family issues or an undiagnosed disability, but police officers don't stop to consider those issues when they're deciding whether to issue a caution.

"Involving Elders is a way to make sure that children's needs are understood, and they are given real opportunities to connect with their family, community and culture."

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In its submission to the Inquiry into Victoria's Criminal Justice System, the legal service said funding was needed to ensure that progress was made and not stepped back.

"We are concerned that this is now the second Koori specific youth cautioning pilot program in Victoria, and the government has still not committed to long-term sustainable funding to ensure that pre-charge cautioning programs are available across Victoria.

"It's time for the government to go beyond pilots and commit sustainable, long-term funding to keeping Aboriginal kids out of the criminal legal system. Of course, there needs to be robust legislation underpinning and guiding reforms, to support the genuine change we all want to see.

"It is critical that changes are enshrined in legislation."

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