Faceless intimidation sparks real violence, say pupils. It is inflamed by TV and video games.
Four out of ten schoolchildren are being victimised by cyberbullies. Abusive texts and threatening messages on social networking sites such as MySpace and Bebo are being used to harass children.
Some pupils have resorted to carrying bottles and knives to protect themselves from the threat of bullying, according a study for Ofsted by Roger Morgan, the children's rights director of England.
Despite the Government launching a series of crackdowns on the problem, two-thirds of children questioned said bullying was getting worse - nearly half said it was becoming a lot worse.
Serious incidents could spill over into stabbings and shootings, the respondents said. Bullying attacks based on religion and sexuality are increasing, researchers were told. And some youngsters said violent video games and television programmes exacerbated the problem.
The 319 young people who were questioned all live away from home in places including children's homes, foster care, residential special schools and boarding schools.
But Dr Morgan said the findings should be read more widely and were applicable to all people working with children and young people, including teachers.
"There is no reason to think that most of this is relevant only to a specific group of children," he said. "My experience is that bullying within this group is not dissimilar from children generally.
"The focus on cyberbullying is a wake-up call to everyone working with children. We all need to get ourselves up to speed with this fast developing area so we can understand better what is facing young people and how to deal with it."
Cyberbullying incidents typically involved abusive text messages and postings on social networking sites.
Pupils reported cases where bullies had filmed their victims being attacked and uploaded their clips to the internet. There were also incidents where bullies deliberately sent their victims computer viruses.
Even more recent phenomena included bullies stealing virtual possessions from children in online games, which the report said, for the victims, could matter as much as having real possessions stolen.
The findings follow a separate Ofsted report last November that found a third of children were regularly bullied and that schools often struggled to deal with the problem. Those results came from a nationwide survey of 111,000 children about their experiences of a wide range of issues including school, underage drinking and drugs.
The latest study also shows that the fear of bullying is a major concern for young people. "Some of our discussion groups told us that when bullying gets serious, a growing way of young people showing that they can defend themselves is to carry a weapon, such as a knife or bottle," the report said.
"Others said bullying between young children is a stage many go through, but bullying by older children and young people is becoming dangerous and there is a growing risk of stabbings at school."
The report follows recent backing by the Home Office to install airport-style metal detectors in schools to deter weapon carrying.
While some children were worried about incidents spiralling out of control, almost four out of ten said they were never bullied. Only 14 per cent said they were victimised often, lower than some previous estimates.
Young people were sometimes reluctant to report incidents because they could not predict how adults would react. Adults confronting bullies or 'making a big fuss' could make the problem worse, they said.
They also complained that school anti-bullying policies were not sufficient to address the problem. Instead, young people want school counsellors to confide in and called for older children to act as mentors to younger pupils.
This idea has been backed by the Government, which announced a pound;3 million peer mentoring scheme last November. It will fund training for older pupils.
Val McFarlane, a regional co-ordinator for the Anti-Bullying Alliance, said increasing numbers of local authorities were using specialist teams to work with schools.
"School staff have often do not have the luxury of time to spend with bullied young people, which is what they need to make a difference," she said.
No hiding place, page 27.