There was a sharp fall in the number of children judged to have a secure grip of language and number, and fewer showed the expected levels of physical and emotional development. The Department for Education and Skills said more accurate marking this year probably caused the drop.
The figures were based on teachers' assessments of half a million children in England after their first year of primary school.
The foundation-stage profile aims to show how children are developing against a set of expectations for five-year-olds' skills.
The results for 2006 showed a fall across each of the 13 areas of development on which children were assessed.
* Nearly a third of five-year-olds were unable to read 20 common words in a range of contexts.
* 17 per cent of the children were still at the basic stage of writing and could not write their own name or other words from memory, up from 15 per cent last year.
* Four per cent of pupils could not count to 10, while 39 per cent could not hear and say short vowel sounds within words such as "pen", "hat" and "dog".
* 31 per cent of five-year-olds had not yet begun to use use basic mathematical vocabulary, including "add", "take away" and "how many".
The statistical report on the results said measures had been taken to improve the way children were assessed and marks were moderated across schools this year. Beverley Hughes, children's minister, said: "This apparent downshift is largely due to the effects of moderation rather than an actual fall in the achievement of young children at the end of the foundation stage."
The researchers found that the proportion of children said to be "interested, motivated and excited to learn" had fallen; 20 per cent of five-year-olds did not understand classroom rules or the need for agreed codes of behaviour, an increase from 17 per cent last year.