The Isle of Wight Council has told Community Action Isle of Wight it should not continue to expect to receive £78,000 a year in grants.
The council has said it needs to make annual savings of £28,000.
Town and parish councils and community groups are instead being asked to step in to help plug the funding gap.
Through the Voluntary Community and Social Enterprise (VCSE) support contract, money is given to help support an organisation achieve its charitable aims and assist in the local health and care sector.
The contract has been held by Community Action Isle of Wight since 2018, according to the Local Democracy Reporting Service.
Community Action has helped with the island's Covid pandemic and vaccination effort, rehoming Ukrainian refugees and runs Island Community Ventures Ltd and the Riverside Centre in Newport.
Through its Island Community Ventures, it operates shops, post offices and amenities including the Godshill Village Shop, Scarrots Lane Bakery and outreach services in Brading, Wootton and Totland.
The VCSE contract has been in place since 2012 and provided more than £700,000 to support community organisations.
An council spokesperson said no decision had been made in relation to the value of any contracts which have expired as they are currently in the budget-setting phase for the next financial year.