The warning came after a new study showed that the number of 16 to 24-year-olds out of work for longer than six months has reached its highest level for 15 years.

An analysis of official unemployment figures by the TUC showed that 39% of the age group, a total of 366,000, had been looking for a job for at least six months.

The last time so many young people were unemployed for so long was October 1994, said the report, published ahead of new unemployment figures tomorrow which are expected to show another increase in the UK's jobless total.

The TUC said it expected to see another "sharp" increase in youth unemployment in the new figures.

The West Midlands had been hit hardest by youth unemployment during the current recession, with rates increasing more than twice as fast as the UK average, said the report.

Youth unemployment in the region is 26.7%, followed by the North East (22.2%) and Yorkshire and the Humber (21.2%).

Unless the problem is tackled, a generation of young people could be left on the scrapheap, as happened in the 1980s, warned the TUC.

The Government's Future Jobs Fund only has 100,000 places for young people and could be oversubscribed, said the report.

TUC general secretary Brendan Barber said: "Youth unemployment was a concern for the TUC before the recession started, but over the last year the numbers unable to find work have rocketed.

"It's clear that young people are among those bearing the brunt of the recession and rising unemployment. One in five of the UK's young population is currently out of work, and more than 360,000 young people have already spent more than six months on the dole.

"This is a crisis for our young people. Prolonged periods of joblessness permanently damage careers and without continued Government investment we risk losing this generation, who are vital to our future labour market performance.

"The Future Jobs Fund is providing new jobs at decent wages for young people, and cutting it would be a disaster, but we also want to see real support for those who have only just lost their jobs.

"While internships can be a valuable means of providing young people with work experience, great care needs to be taken to ensure that they are not used to exploit young people or as a substitute for real jobs. It is important that interns receive their legal rights and are paid at least the minimum wage."