Nick Clegg has blocked Conservative-backed plans to allow nursery staff and childminders to look after more children.
The Deputy Prime Minister said that after consultations with parents, he did not believe the proposal would raise standards or bring the price of childcare down.
Leader of the Commons Andrew Lansley was forced to defend the Government's stance on childcare after Nick Clegg blocked Conservative plans to review the ratio of nursery staff to children.
Labour MP Andy Sawford told Mr Lansley it was "shocking" there had not been a statement to the House of Commons on the issue.
"If you will not arrange a statement, can you at least tell us what the current policy is? The Deputy Prime Minister said yesterday it's been dropped - you told us this morning it's being reviewed", he continued. "What is the policy? It's a shambles".
Mr Lansley replied: "Our policy is to ensure the quality of childcare increases and the affordability for parents is improved.
"That is what we are setting out to do, it's what we will do. As soon as policies have been agreed, there will be an opportunity for that to be brought to the House for announcement".
After the Deputy Prime Minister Nick Clegg said he had blocked Tory children plans, the Prime Minister's official spokesman told reporters:
"There has been a consultation and the Government will set out the final package of measures shortly".
"When the Government responds, it will take full account of the responses to the consultation and that will guide the package."
Asked whether Mr Clegg had informed Mr Cameron in advance of today's announcement that cuts in childcare ratios had been ruled out, the spokesman said:
"The Prime Minister and Deputy Prime Minister have discussed childcare a great deal, as you would expect, given that it is a very important part of Government policy."
Nick Clegg said it was "flatly wrong" to accuse him of breaking any agreement with other ministers over changes to the childcare system.
Speaking on LBC radio, Mr Clegg said he did not agree to the Conservative-led plans, adding, "What we agreed at the time was that we would consult on this proposal and not make our minds up finally until we had heard from people".
The Deputy Prime Minister said replies to the consultation from nurseries, parents' groups and other experts overwhelmingly suggested it was a bad idea.
He went on: "I know everyone gets sort of hot under the collar in the Westminster village, but I have a very straightforward view - if you have an idea that is controversial, you ask people what they think.
"When you have asked them what they think, listen to what they say, listen to what parents say, look at the evidence and then make up your mind".
The chief executive of the Pre-school Learning Alliance said the charity is "absolutely delighted" at Nick Clegg's intervention over the Conservative's "ill-advised" childcare plan.
Neil Leitch said:
It is a real testimony to the strength of those practitioners and parents who campaigned so actively over the past few months to challenge these plans.
The sector is supportive of the Government's aims to raise the status and quality of the childcare workforce. But this proposal was not the way to achieve this.
There is no doubt that relaxing ratios would have lowered the overall quality of childcare in this country.
Not only would children have received less one-to-one support from childcare workers, but their well-being would also have been put at serious risk.
Nick Clegg said there was "no real evidence" that Conservative plans to allow nursery staff and childminders to look after more children would reduce childcare costs.
Speaking on LBC radio, Mr Clegg said he had even been told by one childcare professional they "might well drive costs up".
The Deputy Prime Minister denied he had agreed to the plans, saying he had only agreed to listen to responses from a consultation process with childcare experts.
"What on earth is the point of consulting people if you're not going to listen", he added during the Call Clegg show.
Shadow children's minister Sharon Hodgson said Nick Clegg's decision to block Conservative-backed childcare reforms shows the Prime Minister "does not have a credible plan to help families access good quality, affordable childcare".
Ms Hodgson said: "The Government's own experts were agreed that cutting childcare staff numbers would have seriously endangered quality and safety, and would not have cut costs to parents.
"Ministers have wasted a year on these flawed plans while childcare costs have kept on rising and thousands of childcare places have been lost".
Jo Swinson, the women and equalities minister said it is a "good decision" that Nick Clegg has blocked childcare reforms.
She told Daybreak: "Parents [and] providers of childcare and also experts in the industry had overwhelmingly responded to the Government's consultation with their concerns."
Liberal Democrat leader Nick Clegg argued that loosening the rules was unlikely to cut childcare costs and could even cost parents more.
Nursery Manager Lauren Straughair has welcomed Nick Clegg's decision to block Tory plans to allow nursery staff and childminders to look after more children.
Speaking to Daybreak she said that health and safety concerns for the extra member of staff, looking after the extra child, was her biggest concern.
"Having to think about fire procedures and getting all of those children out of the building with that one member of staff, that's our main concern", she said.
This is something that really divided the coalition. The Conservatives really wanted to reduce the cost of childcare by having better trained carers who could then look after more children each. But the Liberal Democrats never liked this idea.
It did go to consultation. Now the Liberal Democrats said that found there would probably be no reduction in the cost of childcare and the safety and effectiveness of the childcare would be undermined.
This is not something that will have a great effect at the top of the coalition. The Prime Minister said he was willing to compromise and tonight a Number 10 source said they were still looking at other ideas to bring down the cost of childcare. But some Lib Dems will be pleased with this victory.