Some 700 pre-schools are likely to close when the nursery voucher scheme goes nationwide in April.
The closures would mean that about 20,000 three-year-olds would have nowhere to go, the Pre-school Learning Alliance said this week.
The charity, which has 20,000 member pre-schools in England, is also predicting that nearly 90 per cent of education authorities will be admitting four-year-olds to their schools by September.
Most of these children would be taken into reception classes in an "inferior environment for political reasons", Margaret Lochrie, the alliance's chief executive, said.
"The Pre-school Learning Alliance warned the Government 18 months ago that unrestricted competition could lead to a reduction of places. We well understand that LEAs feel that their funding is under attack from nursery vouchers, but we are disappointed that they should have chosen this course of action."
A telephone survey by the alliance of 115 LEAs in England found that 84 were making arrangements to admit four-year-olds carrying the Pounds 1,100 nursery voucher in the "dash for cash". A further 16 are still discussing the subject, and 27 said they had changed their admission policies because of the voucher scheme.
The alliance fears that many of the four-year-olds will be admitted into reception classes of 35 pupils. By contrast, it says, the staff-child ratios in nursery classes are 1:13, and in the voluntary and private sectors it is no worse than 1:8.
It wants the Government to close the loophole and ensure that four-year-olds in reception classes have the right to the same conditions as those elsewhere.