One in six care homes are showing signs that they are at risk of failure amid rising costs and lack of funding, a new study shows.
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.
Lee Causer, of Moore Stephens, said: "Too 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.
"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."
Shadow social care minister Barbara Keeley said ministers had "repeatedly ignored warnings that under-funding is causing a crisis in the care sector".
"This lack of funding damages the quality and safety of care and makes the care sector fragile and more prone to risk of failure," she said.
"Directors of adult social services have recently warned that increased costs and demand will mean will mean 8% further cuts to care budgets this year, adding to the fragility of the care sector. This is serious given that failures within care providers have affected two out of three councils in the last six months.
"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."
A Department of Health spokeswoman said: "Everyone deserves to receive high quality care in older age -- that is why 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."