The Office of the Third Sector has suddenly abandoned a scheme to give £750,000 to small campaigning charities.
The decision was announced today without consultation, three weeks after successful applicants to the campaign research programme had been told they would receive funds.
Applicants have now been told that the programme, which was intended to help small charities advocate for change, no longer exists.
The funding has instead been diverted to the Hardship Fund, a £16.7m fund announced in this year's Budget to support third sector organisations providing services for disadvantaged people.
The Compact, which outlines how the public and voluntary sectors should behave towards each other, says organisations should give 12 weeks notice of changes to funding agreements.
Chief executive Stuart Etherington said he was appalled by the decision.
"Making this decision at such a late stage has resulted in a complete waste of public funds and time for all involved," he said.
Angela Smith, Minister for the Third Sector, said: "It is clear to me that our priority at this time has to be to support the third sector during the recession. The decision does not alter the fact that the Government is committed to enabling campaigning in the third sector."
So far, 160 organisations have been awarded grants worth £14.5m through the Hardship Fund. The additional £750,000 will enable 15 extra organisations to receive funding.
Those organisations promised funding from the Campaigning Research Programme will be offered free campaign training and compensated for their application costs, which involved attending an interview.
Shadow charities minister Nick Hurd said: "Having wasted millions on launching v and Capacitybuilders, the Government now can't find thousands to deliver on its promises to campaign groups.
"As so often with this Government, good intentions have turned to dust."