The children aged between seven and 18 years old were released to the Borno State government and UNICEF in Maiduguri, northeast Nigeria, which has borne the brunt of Boko Haram's decade-long insurgency.
Army spokesman John Agim told CNN the children were being used as "foot soldiers" by the militants.
"Boko Haram militants send them for different kinds of operations, but they are under-aged. So, they need to be rehabilitated before they are released to their families," Agim said.
However, a UNICEF Nigeria spokeswoman said the group of eight girls and 175 boys were released after they were cleared of any affiliation with Boko Haram.
Eva Hinds said the agency "views the children as children," and therefore they could not be classified as child soldiers or "being affiliated to violence without any judicial process. From our perspective, children are easily coerced into doing things to stay alive."
"Their involvement is still an allegation," she added.
The children are being rehabilitated and given psychological support, Hinds said.
Around 8,700 children released from armed groups have been rehabilitated in the country since 2017, according to UN figures.
Mohamed Fall, who heads UNICEF Nigeria, said their release from the military was "an important step on their long road to recovery."
"I also want to commend the action taken by the military and the authorities, it demonstrates a clear commitment to better protect children affected by the conflict," Fall said.
Last month, the army said it had rescued 148 hostages, most of them women and children, from Boko Haram militants.
Over 1,000 hostages were also freed in May by the military after a week-long battle with insurgents in northeast Nigeria.
Boko Haram has devastated vast swathes of northeast Nigeria over a ten-year period and has kidnapped more than 1,000 children in Nigeria since 2013, according to a recent report.
The group sparked global outrage after militants seized 276 girls from a boarding school in Chibok town, Borno in 2014.
Some of the girls were freed last year following negotiations between the government and the militant group.