It emerged last week that Camelot, which promoted its contribution to charities during its successful bid for a third lottery licence earlier this year, had decided at short notice not to give the foundation £1m it was expecting. The payment was to be the first of two equal tranches the foundation was due to get this financial year.
A Camelot spokesman said the reduction in funding was planned and would enable Camelot to become more efficient and maximise its returns to good causes.
But Camelot papers seen by Third Sector say that funding for the foundation should continue "during a second licence period" lasting until 2009 and that the funding level should be £2m a year from 2002.
A spokeswoman for the foundation, which has given grants to thousands of charities, said the move was a shock. "It has been like the proverbial rug pulled from under our feet," she said. "We support charities that will not be able to get funding from other sources."
Joe Saxton, chair of the Institute of Fundraising, said the foundation's trustees should be prepared to battle for the money: "They must be prepared to fight tooth and nail for the funding, and if they are not prepared to do that they should resign."
Stephen Bubb, head of chief executives body Acevo, said: "This saga raises disturbing issues about the independence of foundations, but Acevo's key concern now must be ensuring the Camelot group meets all the commitments it has made to charities. I have been in touch, urging Camelot's board to review its position."
The Camelot spokesman said the organisation will have paid the foundation more than £26m between 1997 and 2009.