The Early Childcare Supplement is to be cut by over €100 per child each year as part of plans by the Government to save €2 billion in Exchequer spending.
The annual payment per child will be reduced from €1,104 (€92 per month) to €996 (€83 per month).
The new level is slightly below the €1,000 rate paid when the scheme was introduced in 2006.
In addition, the age threshold for children receiving the payment will be lowered from 5 1/2 to 5 years of age.
The new rates will come into effect this May.
Minister for Children Barry Andrews said the decision was taken "due to the current economic climate and the need to restrict public Expenditure". He said the cuts "represent the most equitable approach to delivering the requisite savings".
The cuts will save some €77 million annually, Mr Andrews said.
Labour's spokesman on children Senator Alex White said the cuts would add to the pressure on working parents, particularly if one or both are public servants.
"One wonders whether there is an agenda at work here to disincentivise women in particular from re-entering the workforce, now that the economy is in such dire straits," he said.
The National Women's Council of Ireland also said it was concerned that the Government was pursuing an agenda of targeting childcare costs.
"The NWCI is apprehensive that the Government is sending a clear signal to all parents, particularly women, that supporting childcare is a luxury which cannot be afforded in the current economic recession," it said in a statement. It said reducing supports for women with children "is a short-sighted measure which will not help Ireland move out of recession".