Recommendations from the state's first truth-telling inquiry were made in an interim report tabled to Victorian parliament on Monday.
The Yoorrook Justice Commission's latest round of hearings focused on the state's child protection and criminal justice systems, with 84 witnesses giving evidence over 27 days.
The commissioners heard Indigenous families and communities were being routinely failed, resulting in devastating and ongoing harm.
The inquiry has made 46 recommendations to reform the systems and make them safer for Indigenous Victorians.
It called for the Victorian government to transfer decision-making power, authority, control and resources to Aboriginal communities in the criminal legal system and child protection system.
Indigenous children were over-represented 11 to one in the child protection system compared to their non-Indigenous equals.
"Decades on from the Stolen Generations, the Victorian government is removing First Peoples children at the highest rate in Australia," commission chair Eleanor Bourke said.
"This report must be a catalyst for transformative change. The foundations for change have been laid in Victoria through truth and treaty. Now is the time for action."
Aboriginal people are 13 times more likely to be incarcerated than non-Indigenous people.
It also recommended establishing and adequately resourcing an independent police oversight authority led by someone who has not been a police officer.
The body should investigate all complaints about police and have the power to arrest, search property and compel the production of information from Victoria Police.
"We know roughly 98 per cent of complaints are investigated by police, and only three per cent go to IBAC," deputy chair Sue-Anne Hunter told media on Monday, referring to the Independent Broad-based Anti-corruption Commission.
"It needs to be First Peoples at the front, leading those First Peoples investigations against police.
"We want transformational change and at the heart of that is self-determination."
Yoorrook took aim at the government's staggered plans to raise the age of criminal responsibility, saying it should be immediately raised from 10 to 14 years, with no exceptions - including murder.
The government must go further with its bail reforms and ban routine strip searches in prisons and youth justice centres, the commission said.
Yoorrook recommended creating a presumption in favour of bail for all offences except murder, terrorism and other similar charges.
Victorian Aboriginal Legal Service chief executive Nerita Waight and Victorian Legal Aid support the recommendations.
"At VALS, we see the damage that the criminal legal and child protection systems do to our people every day," Ms Waight said.
"We also see the great work that our communities are capable of, but the potential of this work is often limited by governments that don't provide the support our communities need to improve the lives of our people."
The state government thanked the commissioners for their "historic" work.
"We'll continue listening to and working with the commission in an open, transparent and genuine way and will carefully consider all 46 recommendations," a spokesman said.
Nationals leader Peter Walsh doesn't favour separate legal systems, but said his party would share its policies in the lead up to the 2026 election.
"I don't think that setting up a totally separate Aboriginal system in Victoria is necessarily the way forward," he said.
"We are all Victorians, we are all Australians and we need to work together to solve disadvantage."
Yoorrook is due to hand down its final report in 2025.
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