International aid groups have been approached, but most have refused to help build new accommodation for the orphans, saying that it is not part of their mandate, says a New Zealand aid worker.
Aid worker Graeme Rapley says as many as 700 orphans are staying in four orphanages and Muslim boarding schools, which are overcrowded, unsanitary and depend on handouts from local residents to feed the children.
One group of 70 orphans in Matang Drieng village, north Aceh, are living in particularly appalling conditions.
"They are sleeping on the ground, with just a blue tarpaulin overhead, there is no water, no sanitation, absolutely nothing," said Rapley, a project manager with the International Organisation for Migration, constructing housing for tsunami victims.
"Local residents and the TNI (the Indonesian military) are giving them rice and drinking water," he added.
No government funding
All except one orphanage says they are not receiving any funding from the government, and are relying on local non-government groups, and residents to feed the orphans.
Rapley says local Muslim groups approached him and asked for help in constructing new barracks and facilities for the orphanages, after international aid groups had turned down their appeal for assistance.
"We say it is better that the children live with their extended family, or other community members. An orphanage is not the right place for children to live in"
Save the Children press officer
Save the Children, says it does not support the construction of orphanages because "it perpetuates the terrible situation children are living in", says its press officer Abigail Wilson.
"We say it is better that the children live with their extended family, or other community members.
"An orphanage is not the right place for children to live in," she added, pointing out that Save had re-united around 200 children with parents or their extended family since the tsunami struck last December.
Wilson also said the orphans were not victims of the tsunami, but were orphaned during Aceh's long running separatist conflict, and that Save was looking at how to help such children.
Prior to the devastating 26 December tsunami, independence rebels fought a three decade long guerrilla war, which killed 15,000 people, creating thousands of orphans.
Unicef also says it was surprised to hear that so many children could have slipped through the aid crack.
"Our first priority is to make sure all kids are well looked after and safe"
Unicef communications manager
"Our first priority is to make sure all kids are well looked after and safe," said John Budd, communications manager for Unicef.
Unicef says North Aceh's 700 orphans - around 70% of whom are tsunami victims - are being cared for by 10 Islamic boarding schools, all of which receive local government funding.
However, Budd said that Rapley's allegations had prompted the aid agency to send investigators to the region and that Unicef planned to help children who lost parents during Aceh's brutal separatist war.
Rapley said that while around half the children were orphans prior to the tsunami, the other half lost their parents to the tidal waves, and existing orphanages can barely accommodate them.
In three of the four orphanages children sleep in mosques, which are open to the rain and mosquitoes, because there is not enough space inside the orphanage barracks.
The orphanages are dangerous, with a barrack at the orphanage in Lhokseumawe collapsing during a storm, he added.
More than half the orphans are girls, many teenagers, whom he fears could become targets for Indonesia's enormous sex trafficking market.
Young orphan girls could become
targets for sex trafficking
Trafficking experts agree that such children are in danger of exploitation.
Five young Acehnese women offered jobs in a factory in Malaysia, were smuggled earlier this month to a sex tourism resort on Karimun Tanjungbalai, a small Indonesian island close to Singapore.
The girls were rescued after one of them escaped from their minders, reporting their case to the police, said Tristan Burnett, counter-trafficking manager for the International Organisation for Migration.
Tristan says that such cases suggest traffickers are already scouring Acehnese villagers looking for young people desperate for work.
The 26 December tsunami prompted unprecedented outpouring of aid, with private donors, governments and aid groups promising approximately $5 billion for Aceh alone, the most devastated region out of all the tsunami affected countries.