The Department of Culture, Media and Sport has applied to Parliament to allow the Lottery distributor to hand out Government cash. Tessa Jowell, the secretary of state for the department, also hinted at the move last week when she announced a major overhaul aimed at speeding up Lottery-money distribution.
At present, the Community Fund is not allowed to handle non-lottery money.
This situation has frustrated the Home Office, particularly its Active Communities Unit, which had previously approached the fund to process its grants.
Changing the law might take up to a year but would make it much easier for small community groups to get access to Government cash.
Gerald Oppenheim, head of communications at the Community Fund, said: "In the future, Government money could be channelled through the Community Fund to make it easier for voluntary agencies to deliver public services."
The Community Fund's impressive track record in getting money to small groups in the regions is the reason behind the bid to broaden its remit.
Les Hems, director of the Institute of Philanthropy at University College London, has been consulted by the Treasury as part of its spending review into the role of the voluntary sector in public service provision.
He said the Government is considering the possibility of a social venture-capital fund to make it easier for charities to raise capital and the Community Fund would be a way to make this happen.
Hems added: "The Community Fund is a huge mechanism for delivering grants to the voluntary sector.
"If the Fund is allowed to channel Government funds, and the key policy drives of the Government are public services and active citizenship, then it seems logical that the Community Fund could deal with both."
As part of a wider review of the Lottery, the Government has said it aims to halve the £3.5 billion surplus funds within two years. The plan includes speeding up administration, setting up local Community Chests for grants up to £500, and taking a more flexible approach to partnership funding.