As Nursery World reported last week, the local authority had interpreted the Childcare Act as a duty to manage rather than to provide existing and planned childcare services.
The proposal prompted a public outcry, with the trade union Unison backing childcare staff.
Five community nurseries, two playgroups and a Sure Start nursery had been at risk.
The council said the move was part of the first phase of its childcare sufficiency assessment and it was working to complete this by March this year.
It acknowledged that the Government had clarified that the deadline to complete the whole process is March 2008.
A spokesman for Newcastle City Council said, 'The Government's position as to whether or not it expects councils to move away from being direct providers of general childcare provision (except for specific categories, for example "children in need") was, until the last day or two, quite unclear.
'We are now pleased that they have provided clarity that they are not necessarily expecting councils to stop running nurseries and playgroups, as originally appeared to be the intention of the Childcare Act.
'We apologise for any confusion, which will have inadvertently worried parents and staff, and are glad that we can now confirm that this review is not based on any plan for the council to stop running nurseries and playgroups.'
The council also denied that the move had been part of a cost-cutting exercise to save 825,000 by closing nurseries.
Children's minister Beverley Hughes said that Newcastle City Council had not been given guidance on the closure or outsourcing of existing local authority day nurseries.
She said section 8 of the Childcare Act, due to come into force in October 2007, would state that 'a local authority must not deliver new childcare provision itself unless it is satisfied that no other provider is willing to do so'.
She confirmed that the Government would be consulting in the next few weeks on draft statutory guidance for section 8 of the Childcare Act and other sections relating to the new local authority duty to provide sufficient childcare.
'The guidance will make clear that the restriction in section 8 relates only to new or expanding local authority childcare.'
she said.
