Less than half of five-year-olds in England meet government goals for their learning and development.
Children are observed in the classroom for the assessment
Assessments of children in reception classes show only 45% have the skills ministers want them to have - up one percentage point on last year.
Only half meet goals on communication, language and literacy. Children in deprived areas perform least well.
Ministers say it is progress but they are disappointed the gap between rich and poor has not narrowed.
The statistics are drawn from assessments made by teachers in a child's first year of formal education - reception class.
Teachers look at how far pupils go in reaching what are known as "early learning goals" in areas such as:
- personal social and emotional development
- communication, language and literacy
- mathematical development
- physical development
- creative development
- knowledge and understanding of the world
The assessments - in what is known as the foundation stage - show an improvement of almost four percentage points in linking sounds and letters - the building blocks of reading.
65% of children reached the expected level, which is measured by pupils' abilities to recognise and say words like "red" and "dog" or "pen".
However, 14% of pupils were well below the expected levels of development in this area and could not say the letters of the alphabet.
The results found 58% of five-year-olds were reaching a "good level of development" in writing, for example in producing shopping lists, stories or letters - a one percentage point rise.
Reading and calculating (part of the maths assessment) also went up by one percentage point to 69% and 70% respectively.
15% of five-year-olds could not write "mum", "dad" or their own first name from memory.
Children and Families Minister Beverley Hughes said: "This year's results show that we are beginning to make progress in the right direction.
"They are a credit to the hard work that parents, practitioners and local authorities have done to make sure that young children have the best possible start in life.
"The overall level of improvement, particularly in communication skills which have been the focus of recent investment, shows that our reforms are having a genuine impact on children's development."
Vulnerable and disadvantaged
She was unhappy though that the achievement gap between children generally and those in deprived parts of England had not narrowed.
Only 35% of five-year-olds in deprived areas were reaching the early goals compared to 45% of the population as a whole.
Ms Hughes said: "Of course we need to do more. I welcome the fact that the achievement of disadvantaged children has risen in step with other children, but I do not believe we should be satisfied with this.
"It is disappointing that the gap between these children has not narrowed. Both we and local authorities must focus our efforts on improving the life chances of children who are the most vulnerable and disadvantaged."
The government has put a lot of resources into schemes designed to help lift children out of the poverty trap and improve their life chances, believing that early intervention is crucial.
Sure Start children's centres have been set up in 1,500 of the most disadvantaged areas, offering nursery or play group sessions as well as health advice and parenting classes.
Shadow Families Minister Maria Miller said: "The government can no longer claim that it is too early to judge Sure Start. The data released by National Statistics clearly show the Government is now missing its own performance targets despite spending £21bn since 1997.
" Children from our most deprived communities still face a significant disadvantage which Sure Start has not yet been able to address."