The Cabinet Office has announced that it will insert a clause into all grant agreements preventing such funds from being used by charities to lobby government.
The National Council for Voluntary Organisations said the move was "tantamount to making charities take a vow of silence", and Labour said it was "an outrageous attempt to further curb the independence of charities".
The move, announced today, will require government departments to insert a clause into all new or renewed grant agreements from 1 May spelling out that the funding cannot be used to fund activity intended to attempt to influence parliament, government or political parties.
A statement from the Cabinet Office said the think tank the Institute of Economic Affairs had carried out extensive research on "sock puppets", which the department said "exposed the practice of taxpayers’ money given to pressure groups being diverted to fund lobbying rather than the good causes or public services".
The IEA produced a report in 2012 that said state funding for voluntary organisations created a "sock-puppet version of civil society" that "subverts democracy and debases the concept of charity".
The NCVO said at the time that the report was "woefully short-sighted" and misunderstood the work that charities do.
The government said today that the new clause would ensure taxpayer funds were spent on improving people's lives and good causes rather than lobbying for new regulation or for more government funding.
The clause will say: "The following costs are not eligible expenditure: payments that support activity intended to influence or attempt to influence parliament, government or political parties, or attempting to influence the awarding or renewal of contracts and grants, or attempting to influence legislative or regulatory action."
The government said any organisation that breached the terms of the new clause could have remaining payments cancelled.
It also said government departments might need to amend their internal monitoring and compliance processes "to ensure that any suspicion that a grant recipient is contravening this clause is given due consideration and dealt with swiftly".
The Cabinet Office said the rules would not stop organisations using their own privately raised funds to lobby "as they see fit".
It said the housing charity Shelter had already been operating under the rules as part of a pilot run by the Department for Communities and Local Government, which had not prevented it from using its own funds to lobby the government on housing policy.
Matthew Hancock, the Minister for the Cabinet Office, said the "common-sense rules" would protect freedom of speech but would mean that taxpayers would not be made to foot the bill for political campaigning and political lobbying.
"Taxpayers’ money must be spent on improving people’s lives and spreading opportunities, not wasted on the farce of government lobbying government," he said.
"This government is standing up for value for money, so we can keep taxes down and support better services that people can rely on."
Sir Stuart Etherington, chief executive of the NCVO, called on ministers to reconsider "this draconian move that could have significant consequences for the charity sector's relationship with government".
He said: "The new rules attached to grant income would appear to prevent charities from suggesting improvements or efficiencies to civil servants or ministers, or even from raising concerns with MPs, for example about the treatment of vulnerable people.
"This is tantamount to making charities take a vow of silence and goes against the spirit of open policy-making that this government has hitherto championed."
Anna Turley, the shadow minister for civil society, said: "This is an outrageous attempt to further curb the independence of charities and restrict their ability to speak out on issues of failing government policy. It has not even been put before parliament so that it can be debated properly.
"Yet again we are seeing the actions of an illiberal government that is scared to debate its record or be open to scrutiny. First we had the gagging act, and now these gagging clauses – where will this end?"
She said the government should be "open to the legitimate views and ideas of civil society, who are the ones who have to deal with the failings of government policy, not ride roughshod over them", and urged ministers to reconsider "for the sake of a decent and transparent democracy".
For further guidance from the government on the new rules, click here.