Wigan beat Manchester City in the FA Cup in May with just one Englishman in the starting lineup, although homegrown Ben Watson came off the bench to score the winner.
Just 25 percent of new recruits by Premier League clubs in the summer transfer window were English, down from 37 percent just two years ago, Dyke said, while only 65 English players started in games last weekend.
"Taking into account that some of these players are not international standard I think it's fair to say we already have a very small talent pool and it's getting smaller," he said.
In the summer transfer window, 490 million pounds ($760 million) of the 630 million pounds ($980 million) spent by English sides went to overseas clubs up 60 percent year-on-year, according to accountancy firm Deloitte.
Dyke pointed to how Sunderland owned by an American (Ellis Short) and managed by an Italian (Paolo Di Canio) made 14 signings in the summer transfer window but only one was English.
One reason, Dyke pointed out, is that it appears to be cheaper to import players, meaning that "English football is now full of a lot of very average foreign players as well as some brilliant ones."
Dyke is concerned about the number of British work permits being granted to players from outside of the European Union, claiming that around 30 percent of applicants "did not meet the standard criteria."
"In the future it's quite possible we won't have enough players qualified to play for England who are playing regularly at the highest level in this country or elsewhere in the world. As a result, it could well mean England's teams are unable to compete seriously on the world stage ... year by year, the position is getting worse."
To find out why England is struggling and to produce solutions to the "serious and growing problem," Dyke is setting up a commission that will include the heads of the Premier League, the Football League, the League Managers' Association and the Professional Footballers' Association.
"Often the toughest challenge is implementing ideas for change, particularly when the tanker needs turning," Dyke said. "And English football, I think, is a tanker which needs turning."
While not writing off England's chances completely of competing at tournaments, Dyke does not expect the 1966 World Cup winners to challenge for honors at the next two World Cup or European championships.
"(I want) the England team to at least reach the semifinals of the Euro Championship in 2020 and the second is for us to win the World Cup in 2022," Dyke said.
That relies on fundamental changes to English football.
"If not, it's hard to see England even challenging for the World Cup or the Euro Championships in the years ahead let alone meeting the targets I've set."
England is struggling to make next year's World Cup with four qualifiers remaining. Roy Hodgson's team is second in its qualifying group two points behind Montenegro with a game in hand and with four matches left. Only the group winner qualifies automatically with the runner-up facing a playoff.
- AP
