Local authorities want the Government to close a loophole in the law which allows private nurseries shut by councils for their poor standards of care to reopen as independent schools.
The Association of County Councils fears the welfare of under-fives is at risk because under the Children Act care is unregulated in private schools which offer day-care facilities.
The 1989 Act removed the requirement for independent schools containing such young children to register with local authorities and the Department for Education and Employment providing they contain at least five full-time pupils of school age.
In July, the ACC wrote to the Department of Health claiming that inspections by the Office for Standards in Education are infrequent and focus on standards rather than safety and welfare.
Stephen Campbell of the ACC said: "This is a disaster waiting to happen. These children are in real danger. There are dangers that the premises will be unsatisfactory and that staff are inadequate," he said.
Rod Jones, head of Nottinghamshire County Council's children and family policy unit, first raised the alarm about the legal loophole after the county learned that pre-schoolers in private schools were not subject to external and annual inspection of their care.
Mr Jones said he knew of a Coventry nursery unit on the verge of being shut down which had considered setting itself up as an independent school.
"The relevant point is the frequency and function of the inspection process. It could be that a child of two or three years old moves through several classes before the environment is inspected," he said.
Nottinghamshire feared that the Government's nursery voucher scheme would exaggerate the problem as a growing number of private-sector providers had arrived on the market, he said.
Elizabeth Hunter Johnston, head of the children's service branch at the Department of Health, told the ACC that it was satisfied that OFSTED's inspections of private schools with under-fives "is in fact more stringent than you suggest".
She did, however, agree that "there have been recent concerns about providers who seek to evade regulation under the Children Act by using the five-children-of-compulsory-age criterion".
The DFEE liaises with social services in order to spot schools seeking registration which have previously been registered or deregistered as private day nurseries, she said. It also invites the local social services department to visit a school if there is cause for concern.
Mr Campbell said the ACC was considering taking the issue up at ministerial level as the department's reply was unacceptable.