A survey of more than 1,600 nurseries, pre-schools and childminders by the Pre-school Learning Alliance found 42 per cent of respondents said there was a chance they would have to close their setting in the next academic year due to government underfunding.
In particular they blamed the impact of the 30 hours childcare initiative, introduced in September 2017, whereby the government subsidises up to 30 hours a week of childcare for three- and four-year-olds, as well as disadvantaged two-year-olds.
The sector has warned that the rate government gives to providers is too little to cover the cost of providing places.
According to Ofsted figures, there were 41,700 childminders registered with the inspection agency as of March 2018, and 27,200 childcare providers on non-domestic premises, totalling 68,900.
Extrapolated across the country, the survey findings indicate that close to 29,000 providers are concerned they may have to close.
The survey showed almost half, 48 per cent, of respondents had increased fees for non-funded hours to make up the shortfall in funding. A third, 34 per cent, said they would put up their rates over the coming year.
In addition, 42 per cent of providers said they have sought to increase income by introducing or increasing charges for additional goods and services, such as meals.
Almost a fifth, 19 per cent, said they would also hike such fees or introduce them within 12 months. Pre-school Learning Alliance chief executive Neil Leitch said extra costs imposed on parents as a result of the scheme would have a detrimental effect of poorer families.
"These figures show, without urgent action, the 30 hours policy is simply not viable in the long term," he warned.
"The fact is that even those providers who are technically managing to make the 30 hours work are often only able to do so by introducing or increasing additional fees and charges."
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A parallel survey of more than 1,100 parents of three- and four-year-olds, conducted by Mumsnet for the Pre-school Learning Alliance, found 45 per cent of parents accessing 30 hours places have been asked by providers to pay additional fees for non-funded hours. Meanwhile, 41 per cent said they had been asked to pay for new or additional charges for goods and services.
In March this year research conducted by the treasury select committee led MPs to call on the government to increase the amount the government was giving providers to fund the 30 hours childcare.
Children's minister Nadhim Zahawi said: "More than 340,000 children have benefited from a 30 hours place in its first year, as childcare providers have risen to the challenge of delivering the offer - meaning that thousands of hardworking parents are saving up to £5,000 a year on their childcare bills.
"We are spending more than any other government on childcare support with £1bn extra funding a year to deliver all of this government's free childcare offers. We continue to monitor delivery costs and we have commissioned new research to provide further information on the costs around childcare."