Francesca Galelli and Molly Curtis, both 13, were left in tears when images of themselves were sent by police to local news websites and uploaded to social media.
They became prime suspects in a £459 theft from Superdrug in Ely, Cambridgeshire, after innocently shopping in the store last month.
The pair have now received a grovelling apology from cops who admitted they had made "an honest mistake that had deeply unfortunate circumstances".
Francesca's sister, Claudia, 21, said her younger sibling came home crying after friends at Soham Village College showed her the news stories which appeared online with her picture.
She said: "I saw the article and I thought 'oh that looks like my sister' but I just thought she would never do anything like that so I just scrolled past it but I later got a phone call and learned friends at school had shown her the story."
"It was really horrible for her. She is so young, she is such a good person, who never does anything wrong, she is the perfect student, this was really upsetting for her.
"When I spoke to her about it she said, 'I don't know what to do'. I told her to just tell people the truth - she did not do it.
"The worst thing for her was everybody looking at her at school and making comments but she is a strong person and held her head up high."
By way of an apology the police have invited Francesca and Molly to sit on a new Youth Consultation Panel designed to improve and promote the relationship that exists between local police and young people aged 12 to 16.
The error has also led to police revising district CCTV policies to prevent further mistakes in the future.
Speaking on behalf of the East Cambridgeshire policing district, Sgt Phil Priestley said: "We made an honest mistake that had deeply unfortunate circumstances.
"We always want to be clear and transparent if we get things wrong, and we definitely want to ensure that people know that Francesca and Molly are good people and that this wasn't their fault."