A memorandum of understanding signed by Premier Mike Baird and ClubsNSW last week states the NSW government had committed to considering the use of the ClubGrants scheme to "assist in providing community care services".

ClubsNSW has told a Productivity Commission inquiry into childcare that clubs are well-placed to provide childcare services in return for tax concessions. Half of Australia's poker machines are in NSW.

The proposal was rejected by Victorian Premier Denis Napthine last month as "very dubious" and "fraught with a lot of danger".

Anti-gambling campaigner Tim Costello, and federal politicians Andrew Wilkie and Nick Xenophon were also critical.

A spokeswoman for Deputy Premier Troy Grant, who is the hospitality and gaming minister, wouldn't comment further on the deal with the clubs. "We will not be pre-empting that work," she said.

But a report commissioned by ClubsNSW earlier this year recommended the NSW government change the ClubGrants scheme so that clubs who invest in childcare or aged care in their buildings can offset this investment against their ClubGrants liability.

Clubs pay 0.4 per cent of poker machine profits over $1 million to the ClubGrants fund. They also gain a tax rebate for poker machine profits spent on certain categories of community projects.

"Allowing clubs to directly allocate their category 3 contributions towards the construction of a new childcare or aged care facility within an existing building or on existing club land would help," the McKell Institute report said.

The director of after-school care provider Extend, Darren Stevenson, said there had been a "very emotive" reaction to the ClubsNSW proposal among childcare services.

"This issue has touched a raw nerve," he said. "Childcare providers have a very strong education and child focus, and attract staff that are passionate about it. Gambling venues are not set up primarily to deliver childcare. There is a definite clash of cultures."

"The feedback I have had is there is a suspicion of what the gambling venues are doing. There is no evidence they are doing it for altruistic reasons, or investment in the education of young children. Tax exemptions should not be the driving force behind childcare."

Anne Hollonds, the former chief executive of the Benevolent Society, said research by the Australian National University showed children were afraid of drunk adults and named children's rooms in clubs as their least favourite place.

"Children themselves say they don't like being left in kids rooms in clubs and pubs, so there's a big question mark over what the experience would be for very young children," she said.

Ms Hollands said she was concerned about "unintended consequences".

The McKell Institute report linked the clubs ability to provide care services with the government allowing more club mergers, and the easier transfer of poker machine licences between clubs.

It pointed to the 2013 decision of the Independent Liquor and Gaming Authority to reject a request by the Mounties Club in Fairfield, which has 561 poker machines, for an additional 60 licences.

The MOU signed by the NSW government also commits to reviewing the process by which the regulator decides if a club gaining additional poker machines is in the community interest.

Greens MP John Kaye said: "I have grave concerns that the clubs are trying to get a more lenient hearing before the Independent Liquor and Gaming Authority".

Mr Grant's spokeswoman said the government would examine the clubs proposal to introduce "leasing" of gaming licences between clubs.