Stuart Etherington, chief executive of umbrella body the NCVO, has written strongly worded letters to Tessa Jowell, the Minister for the Cabinet Office, and Angela Smith, Minister for the Third Sector, urging them to reconsider the controversial decision to pull the plug on the £750,000 Campaigning Research Programme.
The Office of the Third Sector decided to divert the programme's funding into the Hardship Fund, a £16.7m pot to support third sector organisations providing services for disadvantaged people during the recession, despite having already promised grants to 32 small campaigning charities.
The department admitted that the decision breached the Compact, which outlines how the public and voluntary sectors should behave towards each other and says organisations should give 12 weeks' notice of changes to funding agreements.
Etherington's letter says he was alarmed at the decision and that the move was "potentially incredibly damaging" to the Compact.
"As the department responsible for championing the Compact, this undermines much of the work undertaken over the past decade to embed Compact principles across government," it says.
"We are fully supportive of the Hardship Fund as a way to support organisations that are struggling financially to deliver front-line services; however, I find it hard to believe that the only way to top up this fund was by taking away funds from smaller organisations."
In the letter, he calls for a meeting between a delegation of affected organisations to discuss the issue.
An OTS spokesman said the department would consider the letters.
"We have been clear that this decision has been taken given specific extraordinary circumstances," he said. "The Government remains committed to championing the third sector and the Compact."