The Government's preferred model for pre-schools is children's centres which provide childcare, family support, health services for children and training for parents alongside education.
Mrs Hodge said that nursery schools provided some of the best early-years education but that was not enough to justify the expense.
She said: "Nursery schools cannot stay as they are, they have to move on and provide a more comprehensive service."
The number of nursery schools has dropped by 9 per cent between 1997 and 2000. The Office for Standards in Education says 32 per cent of under-fives in nursery schools achieve excellent standards compared to 12 per cent in primaries.
Three years ago, as employment and equal opportunities minister Mrs Hodge set up the Forum for Maintained Nursery Schools and announced a pound;7 million fund to help secure their long-term future .
But now the forum's Jane Cole fears nursery schools are being overlooked.
"The spending review earlier this year and the Sure Start unit have made it quite clear they don't value nursery schools.
"LEAs are saying they cannot afford them. Nursery schools are expensive, but they provide value for money.
"They are extending services but there has to be a determination from government to invest in early years, rather than to say it is a non-graduate profession which is what they are saying with children's centres," said Mrs Hodge.