Experts say "woeful" underfunding and a recruitment and retention crisis have contributed to too many children receiving inappropriate levels of care.
Figures from the education watchdog Ofsted show that, at the end of March, at least 166 three and four-year-olds were being looked after by childcare providers in South Tyneside which inspectors deemed to be "requiring improvement".
There were, however, no providers on the lowest possible Ofsted grading of "inadequate".
It means four per cent of children who have places at Government-funded facilities in South Tyneside were cared for by negatively-rated institutions or childminders.
The figures cover all providers that receive funding giving children of that age 15 free hours of care and early education for up to 38 weeks a year. They include 800 children of working families, who are entitled to an additional 15 hours under the Government's tax-free childcare scheme.
Across England, the vast majority of children attended "good" or "outstanding" facilities in March but there were more than 71,000 cared for in settings that "require improvement" and over 21,500 looked after by "inadequate" providers.
Ofsted's Gill Jones said the majority of nurseries and childminders were doing a brilliant job, but added: "There are still too many children attending provision that isn't good enough.
"The early years are absolutely crucial to children’s learning, development and care, and we want to see every child get the best start in life."
The Sutton Trust, which campaigns for equal access to high quality education, called on the Government to increase funding for the sector.
Chief executive James Turner said: "High quality early years education is more important than ever as we begin to recover from the pandemic."
A Department for Education spokesperson said there had been unprecedented investment into childcare over the past decade.
She added: “Standards remain high, with 96% of childcare providers rated good or outstanding by Ofsted.
"It’s testament to the dedication and hard work of early years professionals, which we have seen during this period of uncertainty.”