Kevin Curley, chief executive of the National Association of Councils for Voluntary Service, said the cuts would affect every person living in the 88 neighbourhood renewal areas.
"This is not a cut to bureaucracy or administration," he said. "It is a cut to the frontline in the most deprived areas of England."
He has written to regeneration minister Lord Rooker urging the Government to reconsider, and to charities minister Fiona Mactaggart protesting that the announcement, made without consultation and five weeks before the beginning of the new financial year, breached the Compact.
Tenants groups, community centres and those working with socially excluded young people will be hit by the unexpected drop in funding for the government's Single Community Programme. The programme has been cut by around £12m.
Community Empowerment Networks, the voluntary and community sector coalitions in England's 88 most deprived boroughs, have been told their government grant will be cut by 12 per cent for 2005/6.
But ministers have recommended that the savings be made by cutting the Community Chest, the small grants programme for community and neighbourhood bodies.
This means that grants would be cut by 25 to 30 per cent, according to local councils for voluntary service. Hull Council for Voluntary Service has estimated that its £365,000 small grants budget will be reduced by 21 per cent.
A statement from the Office of the Deputy Prime Minister said: "These decisions have not been taken lightly."
- See Outside Edge, back page.