Gloucester City Council has said it might cut its annual voluntary sector grants budget by almost a third from just under £800,000 to about £550,000 over the next three years.
The council also plans to start a "one-pot" funding scheme, to which all voluntary sector organisations will have to apply.
The new system will start in April, meaning all existing funding agreements will end on 31 March 2011.
A council spokesman said the voluntary sector budget had not been finalised and the proposed cuts were part of a draft plan to reduce the council’s overall spending by 30 per cent.
A spokeswoman for Gavca, the local umbrella body for voluntary sector organisations, said that it was working with the council to ensure that the new scheme worked effectively.
She said that there were concerns that the new funding system would not be ready in time, and that could leave organisations not knowing whether they would receive funding when their current grants end in April.