The government's proposed changes include legislation that would cut a program that provides funding specifically for Indigenous children.
It wishes to move these services into the mainstream funding system.
Education Minister Simon Birmingham said the new model would improve access to child care.
"What we're putting in place is a fairer system where they can access the types of subsidies that other parents get, as well as a strong safety net with some $271 million available to help support regional and remote centres and people of disadvantage to be able to continue to access child care into the future," he said as quoted by SBS World News.
But Indigenous communities fear some centres will be forced to close as a result.
Yappera Children's Service, which provides early education for Indigenous children in Melbourne, is concerned about its future.
The service's CEO, Stacey Brown, told ABC News that its most vulnerable families would be negatively impacted under the new funding model.
"We see red flags that are going to impact on our families and I think that we will see those families no longer accessing our services in the future," she said.
The federal opposition has also criticised the proposals.
The program is due to end by July 2017 when the Government's overhaul of the childcare sector comes into effect.