The program has been caught up in months of bickering between the state and federal governments over who should provide funding.

The state government has released an independent report recommending the program be dissolved and its funding diverted.

The KPMG report cited problems with the program including trouble meeting its aim of short-term care at late notice.

The report suggests funding instead be shifted to the underused Adult Community and Further Education subsidy, assisting parents with childcare while undertaking education and training.

Goonawarra Neighbourhood House manager Lis Rauch criticised the government's decision.

"I'm not happy with the report and disappointed in the government.

"It's a tough situation for us."

She said the neighbourhood house would continue occasional childcare for a three-month trial period.

"For us we'll continue trying. We've upped fees by 25 per cent, to $20for a three-hour session.

"We've also had to reduce staff numbers to the required minimum because of the cuts."

Children and Early Childhood Development Minister Wendy Lovell said the program was being inappropriately used to address gaps in general childcare services.

Jamila Rizvi, a spokeswoman for federal Early Childhood and Childcare Minister Kate Ellis, said the Baillieu government should stop misleading families and follow the lead of other states in committing funding for this type of childcare.

"The federal government also funds an unlimited number of childcare places in Victoria in long day care, family day care and outside school hours care so existing childcare services can expand and new services can be created," Ms Rizvi said.

Opposition Children and Young Adults spokeswoman Jenny Mikakos said the report offered a flimsy excuse to refuse funding.

The Association of Neighbourhood Houses and Learning Centres rejected the report's conclusions.

Policy and research officer David Perry said the report acknowledged the benefits of occasional childcare, including referrals to health and well-being services, childhood development, diagnosis of developmental problems and improved social inclusion.