Ofsted is facing accusations that it is too concerned with protecting its own reputation and has lost public confidence.
In a stinging attack, the Local Government Association (LGA) warned the watchdog is "feeding people's fears" over child safety, rather than acting as a voice of reason.
Inspectors are placing too much emphasis on highlighting weaknesses in child protection, and do not single out the good work done by councils, it said. This has led to the police and health service professional becoming overly cautious when dealing with vulnerable children, and a rise in the number of referrals social workers are dealing with.
In a statement the LGA said: "The LGA believes Ofsted has become too concerned about protecting its own reputation and places a disproportionate emphasis on publicly highlighting weaknesses in child protection without adequately reflecting the huge amount of good work being done by councils across the country."
Applications to take children into care rose by 47% in the three months to September 2009, and the number of children who were taken into care in the past year has risen by 9%, the LGA said.
"These increases are putting the systems which protect children under extra pressure and making it harder to identify the children at the greatest risk of harm," it said.
It warned that Ofsted now needs to win back the confidence of the public, government and local councils. The association has come up with an "improvement plan" which it says will help the inspectorate become "a body which contributes to improving the services which keep children safe."
An Ofsted spokeswoman said: "It is essential that we have independent strong regulation of public services and in particular those for children and learners.
"The LGA is right to say that Ofsted is concerned about its reputation - a reputation for frankness and fearlessness and making a difference to children's lives.
"We would be failing in our duty if we did not highlight what works and where improvements are needed. We make no apology for this."
