London Councils, the umbrella body for the capital's local authorities, has replaced its old grants programme with a commissioning process open to all voluntary organisations.
Tania Pouwhare, co-chair of the Voluntary Sector Forum, which represents charities funded by London Councils, fears big organisations could muscle in on work previously carried out by smaller charities.
"We are concerned that large organisations that can switch resources easily are going to be at an advantage," she said. "We appeal to them not to bid for money in areas that are new to them."
Pouwhare, who is also policy co-ordinator at the Women's Resource Centre, said that she was pleased the length of grants had been extended from three to four years.
But she added that many long-term recipients of grants were deeply concerned about the prospect of missing out under the new commissioning process.
"Losing their funding could signal a death blow for them," she said.
London Councils is holding five meetings with charities to explain the new process. The first is at Ealing Council on 7 February.
Paul McCannah, chairman of London Councils' grants committee, said: "We have worked closely with the voluntary sector throughout the review of the way we distribute our grants.
"It is important that this close relationship continues now we have reached the crucial stage of actually introducing commissioning."