This can have devastating health effects, including potentially putting their brain development at risk.
Satellite imagery analyzed by UNICEF indicates that 12.2 million of the children exposed to severe air pollution live in South Asia.
Thus, it is not only the lungs which are most prone to the dangers of toxins and harmful pollutants the child's brain is equally affected.
"As more and more of the world urbanises, and without adequate protection and pollution reduction measures, more children will be at risk in the years to come". "It is also benefits their societies - realized in reduced health care costs, increased productivity and a safer, cleaner environment for everyone", Lake added.
The report notes that breathing in particulate air pollution can damage brain tissue and undermine cognitive development - with lifelong implications and setbacks.
The particles in city pollution can damage the blood-brain barrier - a delicate membrane that protects the brain from toxic substances. Some particles, such as ultra-fine magnetite, can also enter through the olfactory nerve and the gut and can disrupt how the body metabolizes oxygen, which has been linked to neurodegenerative diseases.
The report explains how the polycyclic aromatic hydrocarbons in areas of high automobile traffic could result in loss of or damage to white matter in the brain.
Scientific findings about the links with brain development are not yet conclusive, but rapidly growing evidence is "definitely reason for concern", UNICEF's Nicholas Rees, the report's author, told the Thomson Reuters Foundation.
Lake called on countries exceeding global limits to step up efforts to reduce air pollution.
These include investing in renewable sources of energy to cut air pollution, increasing the amount of green spaces in urban areas, and improving both knowledge and monitoring of air pollution.
For their part, parents can reduce children's exposure in the home to harmful fumes produced by tobacco products, cook stoves and heating fires.
Create smart urban planning so that major sources of pollution are not located near schools, clinics or hospitals.
Air pollution is closely associated with asthma, pneumonia, bronchitis and other respiratory infections, it said.