In the past year, ministers have invested pound;1 million in pre-school education to help playgroups fight competition from primary school nursery classes. As a result, only 100 playgroups have shut, claims junior minister Margaret Hodge.
However, these figures are contradicted by the playgroups themselves, whose representative body, the Pre-school Learning Alliance, insists that 1,500 playgroups have disappeared in the last year alone.
Last week Ms Hodge threw the groups a pound;500,000 lifeline, but added she was no longer prepared to throw money at the problem.
Whatever the true figures, ministers believe parents are voting with their feet, preferring to put their children into school reception classes or nurseries attached to schools.
Ms Hodge, who has launched an inquiry, said: "We need to talk to parents who have taken their children away from playgroups and see what informed their decision. Fifty-five per cent of parents work full-time and they require full-time wrap-around childcare. We want the playgroups on board, but they need to change to survive in the current market."
Ms Hodge, who has long campaigned for full-time nursery places for working parents, says the playgroups must open longer hours and give a better service, or face extinction.
But Margaret Lochrie, chief executive of the Pre-school Learning Alliance, which represents nearly 18,000 playgroups, blames schools for "creaming-off" four-year-olds in reception classes.
She said: "It's altogether too simplistic to say parents are choosing schools over us. Parents want playgroups, but there are now more four-year-olds in reception classes and parents are coming under increasing pressure from schools to put them there."
The PLA says 1,500 groups were lost last year and a further 1,700 face closure, a loss of 70,000 childcare places.
The Government is spendingpound;8 billion on childcare over the next three years and says it is "crazy" if the playgroups can't take advantage.
And although Ms Hodge believes parent-led groups have a place in the Government's childcare strategy, she also wants a high-quality service with professionally-trained teachers and nurses within an integrated social services and education sector. The Pre-school Learning Alliance has an accreditation scheme which offers a Kitemark of quality to pre-schools, but it is not compulsory.
Rosemary Murphy, of the Private Day Nurseries Association, said: "I'm deeply concerned that the Government has already decided the result of the inquiry. Playgroups are going to the wall and they will say that's acceptable because it's down to parental choice."