London Councils, which represents local authorities in the capital, could face a judicial review over the possible closure of its £26.4m voluntary sector grants scheme.
The scheme, which has existed since 1986, pools money from London borough councils for city-wide projects delivered by voluntary organisations.
But the scheme is being reviewed and some council leaders have suggested the funding should be repatriated to individual councils.
Solicitors Pierce Glynn, acting on behalf of the Roma Support Group, which is receiving £222,000 from the scheme over four years, have notified London Councils that they intend to apply for a judicial review.
They say the group faces "extraordinary difficulty" securing funding from individual borough councils and that three months’ notice of changes to its financial settlement would be insufficient to find other funders. They also claim the consultation procedure is unlawful and breaches equality obligations.
Andrew Colvin, the comptroller and city solicitor who is advising London Councils, said in his written response that the proposed grounds for challenge were misconceived.
"Many of the points you make are more appropriately addressed as part of the consultation process, rather than as a challenge to that process," he said.
The consultation is due to end on 10 November.
Voluntary Sector Forum, a network of voluntary organisations funded by London Councils, is leading the campaign against cuts.