Specialist baby units in Wales are "overstretched and understaffed", according to a report.
The report by special care baby charity Bliss said minimum staffing standards were not being met and units regularly had to close to new admissions.
This led to mothers and babies being transferred, sometimes long distances.
The assembly government said it was committed to improving neonatal care and was proposing to provide an additional £2m a year from 2009-10.
One special care baby unit in south Wales is currently unable to admit babies requiring the very highest levels of care due to staffing shortages.
The findings of the report were based on a Freedom of Information request that every neonatal unit in Wales completed, and a survey of parents.
Bliss chief executive Andy Cole said "amazing care" was being provided to premature and sick babies in Wales every day but doctors and nurses were "increasingly stretched to the limit".
He also said Wales was in need of a dedicated neonatal transport service to avoid long-distance and unnecessary transfers.
Around 3,800 premature and sick babies are born each year who need specialist care at Wales' 13 neonatal units.
Bliss said the number of specialist neonatal nurses increased by 2% from 2006 to 2007 but there was still a shortage of around 120 such nurses last year.
The Welsh Assembly Government said it could not comment on a report it had not had an opportunity to study in detail but work was under way in Wales to further improve services for the benefit of mothers and new-born babies.
33,000 babies are born each year in Wales
Around 3,800 babies are admitted to neonatal units in Wales each year
There are 13 neonatal units in Wales
In 2006, 25% of neonatal units in Wales said they exceeded 100% capacity at some point
Last year, 38% of units said they exceeded 100% capacity at some point
Data from special care baby charity Bliss
"The Welsh Assembly Government is committed to improving care for babies and their families in Wales. To support this commitment Edwina Hart, the minister for health and social services announced in the draft budget last week that she was proposing to provide an additional £2 million a year from 2009-10 to invest in neonatal services," said the spokesperson.
The assembly government said neonatal services had faced "increased pressures over recent years" but as a result, the minister had consulted clinicians during a review.
Priorities included a "dedicated transport system, a clinical information system and the development of clinical networks to improve the care of babies needing specialist treatment".
"In addition, all-Wales standards for neonatal services will be launched by the minister on 8 December which will form the basis of the improvement of services in Wales," said the spokesperson.
"The standards will be used by the managed clinical networks to support planning, design and delivery, whilst ensuring equity of access across Wales.
"Bliss has been involved in both of these areas of work to ensure that Wales develops a neonatal service which delivers the highest quality of care to Wales's most vulnerable babies."