The distributors receive about £1.4bn every year to make grants, and spend approximately 6.5 per cent on administration costs.
The department's structural plan, published in July, announced its intention to tell distributors to cut their administrative costs.
All the distributors have been sent a letter from John Penrose, the Conservative lottery minister, pointing out that best practice in comparable charities is about 5 per cent for administration costs, and that he wanted them to match this figure.
The Heritage Lottery Fund will have until March 2013 to reduce its costs. The Big Lottery Fund, the Arts Council England and the merged Sport England/UK Sport will have until March 2014 to allow for other reforms, such as changes in BLF's income.
Distributors have also been asked to cap at 8 per cent their total running costs, which includes research, technical support and public involvement in grant decisions.
A Big Lottery Fund spokesman said its costs had come down year on year for the past four years.
"Given the volume of small grants that the BLF delivers, the challenge for us will be managing costs lower still at a time when we will receive a smaller percentage of lottery funding and will require substantial further savings over the next four years, while maintaining our high level of service and support," he said.
Kevin Curley, chief executive of local umbrella body Navca, said the cuts could harm local charities and community groups.
"A lot of what is being called administrative costs is actually support provided to applicants, such as helping them bid for funding and helping them increase the impact of any grant they receive," he said.
"And as smaller grants are proportionately more expensive to administer, we could see there being fewer but larger grants, which would disadvantage local communities."