The test-run of a new primary school reading check suggests two-thirds of pupils are likely to fail it when it is introduced in England next year.
Government statistics show just 32% of the six-year-olds in 300 schools who took the test last summer passed it.
The test is controversial because it contains non-words as well as real words.
This is to ensure that pupils are using the government's chosen method, synthetic phonics, to decode words.
Children who learn to read using synthetic phonics, are taught to decode words by breaking them down into individual sounds.
Most schools use phonic methods to teach children to read. But the Department for Education says only 27% uses phonics systematically.
The others may use a mix of methods including picture clues and memorising spellings as well as phonics.
Critics of the test says it is designed to check children's progress in using a specific reading system rather than their reading itself.
The results of the phonics pilot are out of line with the results of national curriculum tests which show that eight out of 10 children in England routinely meet the levels expect of them at age seven and 11.
Schools minister Nick Gibb said: "We need to face up to the uncomfortable truth that, despite the hard work of teachers, not enough of our children are able to read to a high enough standard.
"We have to take account of our place internationally and listen to business leaders concerned about many school leavers' literacy.
"The government can no longer simply congratulate itself on the proportion of pupils reaching the expected level.
"The phonics check's expected level, set by teachers, is appropriately challenging.
"We must adjust our sights if we are to tackle the country's reading problem."
He added that the levels primary school children are expected to reach should not be the limits of ambition, rather they should be considered the minimum expected.
Russell Hobby, general secretary of the National Association of Head Teachers, said: "Large numbers of teachers who used the test during the pilot found it unhelpful and uninformative - less useful than their existing means of diagnosing early reading ability.
"Every school uses phonics in one form or another, but it is certainly not true to say that it is the best way of teaching every child to read."
General Secretary of the National Union of Teachers Christine Blower said the pilot confirmed the NUT's previously expressed worry that the new Year 1 phonics check could actually harm, rather than improve, standards in the longer term.
"A significant 72% of schools experienced difficulties in relation to the use of pseudo words which confused stronger readers.
"As a consequence many pupils could be mistakenly identified as needing further teaching of phonics and held back as a result.
"Phonics alone will not produce fluent readers and there is a real danger that 'teaching to the test' is encouraged, stifling children's enthusiasm for reading."