UNICEF also said almost two-thirds of children aged 6 months to 2 years are not fed food that supports their rapidly growing bodies and brains.
In its annual report, UNICEF warns that poor eating and feeding practices start from the earliest days of a child's life.
"Despite all the technological, cultural and social advances of the last few decades, we have lost sight of this most basic fact: If children eat poorly, they live poorly," UNICEF Executive Director Henrietta Fore said.
The report describes a triple burden of malnutrition: undernutrition, hidden hunger caused by a lack of essential nutrients, and overweight.
According to UNICEF's findings, 149 million children younger than 5 are stunted, or too short for their age, and 50 million are wasted, or too thin, for their height.
The report says about half of children under 5, or 340 million, suffer from deficiencies in essential vitamins and nutrients such as vitamin A and iron, and 40 million are obese.
Worldwide, UNICEF says, close to 45% of children from 6 months to 2 years are not fed any fruits or vegetables and nearly 60% do not eat any eggs, dairy, fish or meat.
As children grow older, "their exposure to unhealthy food becomes alarming," the report says.
UNICEF says this is driven largely by "inappropriate marketing and advertising," the abundance of ultra-processed foods in cities but also in remote areas, and increasing access to fast food and highly sweetened beverages.
According to the report, from 2000 to 2016, the proportion of overweight children aged from 5 to 19 rose from 1 in 10 to almost 1 in 5. It adds that "overweight and obesity continue to rise."
Fore said millions of children eat an unhealthy diet because they don't have a choice.
"The way we understand and respond to malnutrition needs to change," Fore said. "It is not just about getting children enough to eat, it is above all about getting them the right food to eat. That is our common challenge today."
UNICEF says "financial incentives" should reward the increase of healthy and affordable foods. It says "financial disincentives" on unhealthy foods can help improve children's diets.