Less than half of 16 to 24 year olds admitted to watching BBC television channels in the past week, according to research conducted by broadcast regulator Ofcom.
The average time young people are spending with the BBC per day across TV, radio and online - 1 hour 12 minutes - is also down on the previous year, and is around half that spent by the average viewer - 2 hours 33 minutes.
Many more young viewers are tuning into streaming services like Netflix and Amazon Prime Video, which do not legally require a TV licence. At the same time the number of younger BBC iPlayer users has fallen to an all time low. The average length of time young people spend visiting the BBC website has fallen from 2 minutes 43 seconds per day to around 2 minutes per day.
The figures were published in Ofcom's Second BBC Annual Report, which was published last week.
The report also criticised a lack of transparency in the way the Corporation handles editorial complaints. It raised concerns that the BBC is failing to engage younger audience members with its news and current affairs output.
It called on the BBC to "broaden its appeal of it news" which is seen by some as "representing a white, middle-class and London-centric point of view that is not relevant to their lives".
In the report, which covers performance between April 2018 and March 2019, Ofcom found that the BBC is "serving viewers and listeners well through the breadth and quality of its programmes" and "satisfaction remains high."
But the regulator said there is an "absence of a clearly articulated and transparent plan" to address concerns, making it "difficult for us to judge how much progress is being made and whether these steps will be far-reaching enough to deliver substantive progress for audiences in these key areas."
Sharon White, Chief Executive of Ofcom, said: "The BBC is still a vital, valued part of British culture. But we're concerned that a new generation is tuning out of its services.
"So the BBC must set out bolder plans to connect with younger viewers and listeners. We also want the BBC to broaden the appeal of its news, which some viewers and listeners feel isn't relevant to their lives.
"And the BBC must find ways to be more distinctive online, where our research shows younger people are passing it by."
A BBC spokesman said: "We welcome Ofcom's recognition that audience satisfaction remains high and that the BBC continues to deliver for British audiences by producing high quality, distinctive and creative content as well as the most trusted and accurate news.
"The BBC has a clear plan in place to meet the needs of younger and diverse audiences, outlined in this year's annual plan.
"It is focused on BBC iPlayer, BBC Sounds and BBC News Online. All three have grown strongly in the last year. So our plan is clearly working. But we want to do even more for young and diverse audiences, and we will set out our next steps in our upcoming annual plan."
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