Voluntary Action Westminster reported the Conservative council to the NCVO's compact advocacy programme this month for reducing its 2010/11 budget by almost 50 per cent without adequate consultation or notice.
Compact Voice, which represents the voluntary sector on Compact issues, said in a statement: "It appears that affected voluntary groups were not consulted about the impact of the cuts and will also have a reduced role in future decision-making.
"This action is not only a breach of the local Compact but also of their legitimate expectation to be consulted, and such a hit-and-miss approach is unlikely to lead to the best outcomes for the area."
Councillor Ed Argar, Westminster's cabinet member for adult and community services, said in a statement that the council had received 200 applications for voluntary sector funding totalling almost three times the available budget.
"With this level of competition and high calibre of applications, we understand that some organisations will be disappointed by this latest funding allocation," he said.
"Despite increasing financial pressures in the midst of this recession, we remain committed to working with the voluntary sector to deliver services in Westminster."
Argar said the council would be conducting a review that would "address the operation of the Compact in light of the current tough economic climate".