Chancellor George Osborne must include measures in the Budget in March to address youth unemployment and training, says the British Chambers of Commerce.
The business group is calling for a £100m scheme to encourage companies to hire the jobless young or apprentices.
It is also calling for tax incentives to encourage investment in young entrepreneurs.
There are currently almost 920,000 young unemployed people in the UK.
The unemployment rate for 16 to 24-year-olds is 19.9%, according to figures released by the Office for National Statistics last week. Youth unemployment is now at its lowest level since the spring of 2011.
The total number of jobless people is 2.34 million - or 7.2%.
BCC director general John Longworth said while youth unemployment had improved slightly, young people were almost three times more likely to be unemployed than members of the workforce as a whole.
"If the chancellor wants to avoid a lost generation among today's 16 to 24-year-olds, he must use the spring Budget to help business take on and train up young people," he said.
Mr Longworth added that the government should not wait until after the next general election, scheduled for May next year.
BCC director general John Longworth
The BCC's director general John Longworth says the issue is 'vital'
"The crisis of confidence separating Britain's employers and young people can't wait for political posturing or the electoral cycle," said Mr Longworth.
"Getting young people into employment is vital, pressing and easily affordable right now."
Speaking to BBC Breakfast, he added that the issue was "important not just for young people but also for the country in general".
The BCC said concrete measures were needed to promote business investment in youth.
It is proposing a £100m "future workforce grant" scheme, which could offer £1,000 grants to businesses that take on young workers.
It is also calling for a two-year extension to the apprenticeships grant for employers scheme to help create 800,000 new apprenticeships.
And it wants the government to increase tax relief available through the enterprise investment scheme from 30% to 50% for investors in businesses run by people under the age of 24.
Young jobseeker Chris Woodward, who has been looking for work for two years, told BBC Breakfast that while he thought the situation was improving, "it's still quite difficult to try and find a job".
"Obviously a lot more needs to be done," he said. "The issue needs to be addressed properly about getting young people into work.
"And not just getting them the job, but keeping them in work after that as well, not just short-term contracts all the time."
Mr Woodward said many unemployed young people were trapped in a "vicious circle".
"A lot of employers have probably given up on us because they want a lot of experience when going for a job, but obviously you can't get that experience without having worked in that sector before," he added.