The Winter Gardens pre-school in Canvey Island is the second Essex setting in a fortnight to warn that it cannot continue operating if the capital funding is clawed back by the Department for Education.
The pre-school, which is based on the site of Winter Gardens primary school, has moved out of its old accommodation and is running from the school's community hall. However, it can only use the community hall until March.
Last week, a nursery owner who was awarded £1.2m in capital funding told Nursery World that one of her settings, which is also based on a school site, will have to close if the funding is withheld.
Essex County Council wrote to all providers who were due to receive money under the scheme in August, telling them not to sign any new contracts because the Department for Education plans to claw back any funding where there is no signed contract with a builder.
Emma Williams, manager of Winter Gardens pre-school, which recently received permission from Ofsted to increase the number of places it offers from 20 to 26, said, 'When we found out about this we were at the stage of having the JCB come in to knock our old building down.
'We have spent £80,000 so far on preparatory work, but we did not have a signed contract with a builder. We moved out of our old demountable building in July and at the moment we are running from temporary accommodation, which is a community hall based on the Winter Gardens primary school site.
'We cannot go back into our old building because it is in a state of disrepair and it needs a new heating and water system. We will have to close if we are not going to get a new building.'
A local authority spokesperson said that the council is still waiting for clarification from the education department on the potential withdrawal of the funding.
Purnima Tanuku, chief executive of the National Day Nurseries Association, said, 'It is crucial that the DfE confirms as soon as possible its intention with the funds, and that local authorities keep providers informed about the status of any applications.
'It is essential that any contractual obligations to nurseries are met, particularly where costs have been incurred or commitments to spending have been made. NDNA will be raising this with the department and calling for urgent clarity for local authorities and providers.'