Middlesbrough's West Lane Hospital has been heavily criticised in a report by the Care Quality Commission (CQC).
The independent report rated the Tees, Esk and Wear Valleys NHS Foundation Trust's child and adolescent mental health wards as 'Inadequate'.
Two teenagers have died this year while being cared for in the mental health unit.
During a previous inspection, in June 2018, services had been rated 'Good' overall.
However, following concerns raised over the treatment of young people receiving support, low staffing, a poor culture and a significant number of self-harm incidents, a responsive inspection was carried out in June 2019.
At the time of the inspection 32 young people were in receipt of care and treatment.
Dr Paul Lelliott, deputy chief inspector of hospitals, said: "We continue to be deeply concerned about the safety and quality of the care being delivered to young people at West Lane Hospital.
"We immediately engaged in dialogue with the Trust and NHS England about addressing our funding as a priority.
"We have also taken enforcement action requiring the Trust to act on our findings, and because of the seriousness of our findings we are considering further action."
Elizabeth Moody, director of nursing and governance and deputy chief executive at Tees, Esk and Wear Valleys NHS Foundation Trust, said: "The Trust fully accepts the findings of the Care Quality Commission's inspection carried out in June 2019.
"Our patients are always our priority so we are sorry that we have not always delivered the high standard of care that we aim to provide at West Lane Hospital, and that the young people in our care deserve."
The report did highlight some areas of good practice at the hospital, with staff being praised by some patients at the facility.
Mrs Moody said: "It was positive to see that the young people on the wards at West Lane Hospital at the time of the CQC inspection commented that our staff were respectful, caring and kind.
"The report also acknowledged a number of areas of good practice at both Baysdale and Holly Unit, and it was particularly pleasing to see carers so positive about the staff and services at those units.
"There is still more work to do. The CQC has outlined a number of actions that we must deliver and we remain focused on completing all those actions.
"We will also continue to work closely with the CQC, service commissioners, staff and most importantly the young people in our care and their families, to ensure we provide better care at West Lane Hospital."