The party's shadow early years minister Tracy Brabin said the change would be part of efforts to simplify the overly complex childcare funding system, were Labour to get elected.
"We'd shift to supply-side funding so money would go directly to settings," Brabin told CYP Now in an exclusive interview.
"We need to make it simpler - you have tax-free childcare that nobody uses, the hugely popular childcare vouchers and 30 hours where providers need to re-register every three months. The system needs to be streamlined."
Organisations within the early years sector have raised a series of concerns about the way the government's 30 hours offer is funded, both prior to, and since, it was introduced in September 2017.
A study published in April found that small childcare providers are struggling to make ends meet, with some considering closing their doors for good, due to a shortfall in government funding for 30 hours.
The government has introduced requirements on local authorities to pass on more of the money they receive from central government to frontline childcare providers - 93 per cent of the funding they receive from government in 2017/18 and 95 per cent from April 2018, amid concerns they were holding some back.
Brabin added that Labour's early years taskforce, launched in September 2016 by shadow education secretary Angela Rayner, was assessing ideas for how to make free childcare work better.
"There are lots of different ideas coming to us - for example, tap-in tap-out cards. These are not Labour Party policy but we're working with academics and experts to dig deeper into how we offer and operate it."
Brabin also reiterated the party's commitment to investing an additional £5.3bn in early years if it were elected - £4.8m to extend 30 hours to all two- to four-year-olds and £500m to support Sure Start children's centres.
This would be paid for by an increase in corporation tax and levy on private schools, she added.
The extra funding for free childcare would come with additional obligations on providers to invest in staff training and improving quality, added the MP for Batley and Spen.
In addition, Brabin called for a national conversation about the future of children's centres.
"We need to think about what Sure Start will look like in the 21st century," she said.
"We need to identify and define what the next 10 years might look like. It might be more of a one-stop-shop where families get cooking advice, help with housing, support for mental health. You need to build in meeting the holistic needs of families."
She added that she hoped to establish an expert group, including local government leaders, to address the issue.
For the full interview see the latest edition of CYP Now or click here.