Happy Feet Day Nursery in Coniston Hall, Cecil Street, was visited by Ofsted inspectors last month who labelled the nursery inadequate - the worst rating - in all areas in a report published yesterday.
The youngsters were watched playing with large hammers and metal tape measures and staff did not consider the potential risks, inspector Anne Clifft says in the report.
"Children's safety is significantly compromised," she says. "Staff do not risk assess children's activities.
"They do not consider the potential risks as children play with large hammers and metal tape measures.
"Children are not safe when they play with this equipment because staff fail to supervise them adequately."
She also says leaders did not notify Ofsted of "significant events" within the required timescale, and staff failed to lock doors which lead out onto roads, so children can "easily leave the premises without staff noticing".
But staff did check visitors' identification and request that they sign the visitors' book.
At the time of the inspection 36 children with aged from newborn to four were on roll at the nursery.
Ms Clifft also says that staff followed strict routines that did not meet the needs of individual children.
She adds: "For example, staff do not notice when children need to have their nappies changed and only take them to be changed when this is pointed out to them.
"They delay the opportunity for younger children to sleep because it is not sleep time.
"This means children are upset and frustrated because they are clearly tired."
Ms Clifft described the nursery as "chaotic" and also said children were given blankets at nap time that were not washed for up to two weeks.
She says: "Staff do not motivate children to play, explore and to make new discoveries. Children wander around aimlessly.
"They are bored, restless and not engaged in purposeful play or learning. This leads to a chaotic and disorderly environment."
Ms Clifft added that children's learning and development was poor, as they failed to "thrive" and were not well prepared for their next steps in their learning and starting school.
The one key strength mentioned in the report was that staff provided the children with healthy snacks and drinks.
Inspectors issued a Welfare Requirements Notice with a number of requirements for the nursery to fulfil by May 2 but the Ofsted report indicates it has now closed and the nursery failed to answer the phone when contacted by the Express & Star.
Happy Feet Day Nursery was registered by Little Chasers Day Nursery Ltd, which was based at Wolverhampton Road in Cannock before it closed.