London Councils has proposed reducing its voluntary sector grants programme to £8m a year from 2013 onwards.
This is a decline of nearly 75 per cent compared with the budget of £26m in 2010/11.
It had originally planned to reduce the sum by a greater amount but was forced to rethink after a judicial review found that it should rerun its consultation.
It had not since clarified what would happen to the scheme after the current financial year.
Borough leaders had indicated the scheme should continue, but at a much reduced level. At a meeting this month the council’s grants executive therefore proposed the scheme should concentrate on only two or three cause areas.
A consultation, which will take place from November, will decide which ones to support.
This consultation document will propose the scheme will be worth £8m a year from 2013/14 onwards, with a transitional budget of £10m for 2012/13.
A London Councils spokeswoman said: "A final decision on the exact budget for the grants programme in 2012/13 will be made in January. A consultation will be launched in November on what the future priorities for the grants scheme should be and a decision will be made in February."
Tim Brogden, policy and networks development officer at the Voluntary Sector Forum, a network for voluntary organisations funded by London Councils, said it was unhappy that the budget was being reduced, but pleased that the council planned to continue the grants programme.
"VSF welcomes the fact that there seems not to be a consensus to dump the scheme," he said. "But we would hope final decisions about the overall grants scheme budget are only made once decisions about priorities have been agreed."