Watsonia Occasional Childcare Centre was one of 220 Victorian childcare centres affected by a state government decision to axe funding in May.

The centre, which provides short-term childcare for 80 children each week, has now been advised it will

also lose its state-backed indemnity insurance from December 31.

Watsonia parent and president Kate Shacklock said the centre would now be forced to pay for its own public liability insurance – estimated at $2600 a year – in addition to the latest funding cut.

Ms Shacklock said the centre expected to lose more than $28,000 a year – 43 per cent of its external funding – and was expecting to increase its fees and rely on the council for extra funding.

She said as a result of the changes, the centre was mistakenly under the impression it had been left without public liability insurance for six weeks in July and August.

Department of Education and Early Childhood Development spokeswoman Vanessa O'Shaughnessy said: "We understand that because of an administrative issue, this service was told that it was no longer insured. This was not the case – insurance cover remained in place for this service, and has been guaranteed until December 31," she said.

The department declined to confirm Ms Shacklock's figure of $28,000, although it is believed most occasional childcare centres receive less than $6000 in state subsidies.

Ms O'Shaughnessy said the overwhelming majority of occasional childcare services would continue to be eligible for state-backed insurance under other funding programs.

State Early Childhood Minister Wendy Lovell defended the funding cuts, saying childcare was a federal responsibility, and state funding was not viable on an long-term basis.

Ms Lovell has written to Federal Minister for Employment Participation and Childcare Kate Ellis, calling on her to reinstate the funding.