Third sector minister Angela Smith broke the Compact, the mutual fair play agreement between the public and voluntary sectors, when she announced without consultation last week that her department had scrapped grants worth £750,000 to 32 voluntary organisations.
The grants had been offered as part of the Campaigning Research Programme, which the OTS opened in April to strengthen the ability of charities to campaign for change. Formal offers of grants worth about £20,000 each were sent last month.
But Richard Corden, chief executive of the commission, said: "We don't have any more powers than anyone else to investigate this."
The commission has asked the Government for it to be given statutory powers to investigate Compact breaches, but no powers have yet been given.
Corden said the breach was deplorable, but added that Smith deserved a "minor well done" for owning up.
Tom Elkins, manager of Compact Voice, said it would continue talking to the commission and the OTS about an investigation "to establish why this decision was made".
Meanwhile, umbrella body the NCVO is writing to Smith to request a meeting. It is also writing to the OTS to ask it to explain the rationale behind the decision.
The NCVO has threatened to take legal action, but the six-page terms and conditions of the grants include a clause that says "both parties can agree to end or vary this agreement without the consent of a third party".
An OTS spokesman said: "We are confident that we have not breached the terms and conditions of the agreement.
"The minister was aware of the consequences of this difficult decision, but wanted to focus Government funds on supporting the third sector during these difficult economic times."
Smith said the severity of the recession had prompted her to divert the £750,000 to the £16.7m Hardship Fund.
Organisations selected for the Campaigning Research Programme
Action in Rural Sussex – Three Villages project
BME Community Champions
BME Community Services, West Sussex
Bolton Solidarity Community Association
Bristol Somali Resource Centre
Community Action Safety and Training Trust
Church Action on Poverty North East
Crosby Community Association, Scunthorpe
Easington Lane Community Access Point
Gender and Participation Unit
Greenbank Tenants and Residents Association
Hastings Pier and White Rock Trust
Houghton Racecourse Community Access Point
Iranian and Kurdish Women's Rights Organisation
London Detainee Support Group
Manchester Disabled People's Action Group
Merton Unity Network
Mexborough Community Partnership
North Hampshire Caribbean and African Network
One Community Development Trust
Our Vision Our Future, Chesterfield
People in Action (Leeds)
Press for Change
Reading Refugee Support Group
South Bank Tomorrow
Surrey Gypsy Travellers Forum