One in six care homes are showing signs they are at risk of failure amid rising costs and a lack of funding, according to a new study.
Research by accountancy firm Moore Stephens found that a "persistent" lack of funds from local authorities, coupled with increases to the national living wage, had put considerable financial pressure on the sector.
The growing use of agency workers because of problems recruiting and retaining employees has pushed up staff costs to an all time high, said the report.
Labour said the Government had "ignored warnings" about the affect under-funding was having on the care sector.
Shadow social care minister Barbara Keeley said: "It is time Jeremy Hunt finally woke up to this deepening crisis in care and the Chancellor committed to the £1 billion of extra funding needed to stabilise the care sector and fund a decent living wage for care staff.
Lee Causer, of Moore Stephens, which produced the report, said many businesses in the care home sector are "heading back to the brink".
"The mixture of rising costs, cuts in funding and an aging population has created a volatile situation, with many companies now showing signs of significant financial stress," Mr Causer said.
"Due to the aging population, extra staff are needed at care homes in order to keep up with the demand, but many care homes just don't have the budget for extra staff.
"This has made it increasingly difficult for care home companies to offer a high standard of care whilst remaining solvent.
"Concerns have also been raised that private care home providers unable to make a profit will hand back contracts to local authorities.
"It's critical that care home companies receive the funding they require in order to offer the highest standard of care possible."
A Department of Health spokeswoman said: "We have introduced tougher inspections of care services to drive up standards, provided an additional £2 billion for social care, and have committed to consult on the future of social care to ensure sustainability in the long term."