In a letter to communities secretary Hazel Blears, the charities said the move breached the Compact and demanded compensation and a public apology.
"CLG's actions amount to maladministration, and we believe this may merit being pursued through the parliamentary and health ombudsman," said the letter, signed by Stuart Etherington, chief executive of the NCVO, and representatives from the Foyer Federation, Voice4change and the National Housing Federation.
Stephen Bubb, chief executive of Acevo, has also written to Blears calling for compensation.
The Community Alliance coalition spoke against the decision last week (Third Sector Online, 8 April).
Blears said charities' work would not be wasted: "We are developing a revised programme for the fund at the moment and will announce plans in due course."