More than 400,000 fewer pupils used the school libraries service last year than in 2002-3, according to a report.
The study, from Loughborough university, found that in 2003-4 6.2 million, or 66 per cent of pupils in local authority schools, had access to the service.
However, "of particular concern" was that numbers were dwindling, the study said.
Over the past five years the number of schools library services have fallen in London by 32 per cent, the English counties by 28 per cent and in the metropolitan districts by 22 per cent.
For an annual fee, the service lends schools boxes of costumes, topic-based books, videos and posters every half-term and offers advice to school librarians.
Claire Creaser, of LISU, formerly the university's Library and Information Statistics Unit, said delegated budgets were to blame.
"If a school is in particular financial straits they may decide an extra teacher is more valuable to them than using the service," she said.
In the past two years the schools library services in Waltham Forest, Hammersmith and Fulham, and Oldham closed down, which "does not bode well for future provision", the report said.
Graeme Hollinshead, head of Grange school, in Oldham, said: "We have to make up the project boxes ourselves now from our own school library's stock. There are fewer books for the students to use."
But Hardial Hayer, head of the Radclyffe school, Oldham, said his school had not missed the service: "We are a technology college and so there are computers readily available - the children go on the internet. Things move on, don't they?" he added.
In its last year 26 of Hammersmith and Fulham's 55 primary and secondary schools subscribed to the service. It cost pound;125 per teacher, and only one secondary subscribed.
A council spokesman said: "In one case there was only one teacher at a school subscribing. The service brought in pound;19,125 in its last year, barely enough to cover the librarian's salary."
Westminster has reduced the number of permanent staff from eight to two since 1992.
A Department for Education and Skills spokesperson said: "It is a matter for schools to decide whether they wish to use their money to pay for library services. The Government spends more than pound;750m a year on libraries through local authorities."