The foundation hoped that the Lottery operator would agree to provide £2m of funding at a Camelot Group board meeting last month (Third Sector, 21 November).
But the group has told the foundation that it will provide no extra cash, meaning the grant-maker faces closure in March 2008.
Redundancy negotiations with all seven of the foundation’s staff have begun.
The foundation had expected a minimum of £2m a year funding from the group to continue until the end of the current Lottery licence, which expires in 2009.
“We are very disappointed that Camelot Group has confirmed that it will not provide the Camelot Foundation with any further funding,” said foundation chair Martin Brooks.
“The foundation will now only be able to continue a limited grant-giving programme for the benefit of vulnerable young people into the spring of 2008.”
Foundation trustees will meet on Wednesday to discuss how its final funding programme will operate.
A spokeswoman for the Camelot Group said the group was satisfied that the foundation had sufficient resources to meet its existing obligations.
"Figures provided by the foundation show that it currently has over £3m of unspent funding previously provided by Camelot, of which around £1m is not yet allocated," she said.
Ending funding to the foundation would enable the group to be more cost-efficient and provide more money to good causes in the future, she added.