Media regulator Ofcom has called for a national debate on the future of children's TV in Britain, saying just 17% of output is now homegrown.
TV programmes made in the UK are the most popular, Ofcom says
It stressed that such shows attract more than a third of all viewing.
In a report, Ofcom said parents were understandably concerned about the decline in British-made programmes in favour of cartoons and US imports.
It said investment by ITV1, GMTV, Channel 4 and Five had halved in real terms since 1998.
Greg Childs from the campaign group Save Kids' TV said funding was needed to improve children's broadcasting.
He told BBC News 24: "The money isn't there, with £25m leaving the industry in the last year.
"What we need to do now is move forward and find a way of funding kids TV in the way they do in other countries," he added.
Overall there has never been so much children's programming on British television, with 25 dedicated channels and 113,000 hours of programmes each year.
CURRENT TOP-RATED CHILDREN'S SHOWS
Newsround (CBBC One) - 1.7m
Sarah Jane Adventures (CBBC One) - 1.3m (pictured)
Blue Peter (CBBC One) - 0.9m
Shaun The Sheep (CBBC One) - 0.8m
Lizzie Macguire (CBBC One) - 0.8m
Source: Barb, based on viewing figures 24 September - 1 October
But figures produced for the report - the most substantial analysis of British children's TV ever produced - showed that in 2006, cartoons accounted for 61% of children's programming.
Overall investment in new British children's programmes dropped by £18m from £127m in 1998 to £109m last year.
There was also a reduction in the amount spent on public service children's broadcasting - from £152m in 2002 to £99m last year.
Just 1% of children's programming was made in the UK and being broadcast for the first time.
Children's TV producer and former Playschool presenter Floella Benjamin said more homegrown programming is needed.
She told the BBC's Breakfast programme: "We don't want our children to grow up with American accents, we want them to learn about the culture and diversity around them.
Former children's TV host and producer Andi Peters told BBC Radio Five Live that it is a question of "moderation".
"I do think it is important that we have some UK stuff, but I'm not offended by the American stuff, as long as it meets our standards," he said.
Ofcom's Peter Phillips said: "The thing we are very concerned about is that it's important for kids to understand and reflect their own culture.
"Grange Hill does that for British kids in a way that American dramas, however good they are, don't do because of the cultural differences."
Ofcom said children strongly preferred programmes made in the UK.
Programmes with the most viewers, including Blue Peter and Newsround, are all homegrown.
The regulator said parents value highly the role children's TV plays in society, but that fewer than 50% think it is now delivering public service purposes satisfactorily.
They particularly want more drama and factual programmes for older children.
Ofcom said that, although the BBC had increased its children's output, ITV and the other main commercial channels had cut theirs by more than 50% with advertising declining and competition growing.
It may not be in the audience's long-term interests to have one broadcaster commissioning such a large proportion of shows, the regulator added.
TV producers trade body Pact, which has launched a petition to save children's television on the prime minister's website, welcomed the findings.
"Ofcom's report clearly shows that parents place a high value on quality, home-grown kids' TV and that they want a wide range of children's programmes provided by a variety of services, not just the BBC," said chief executive John McVay.