More than 100 arts organisations could lose their funding under plans unveiled by Arts Council England (ACE).
A spokesman for ACE, which saw its annual grant cut by £100 million in the spending review, said groups that currently get support will have to reapply under a new system which will come into operation in 2012.
The application process is also open to groups that currently do not get funding.
ACE chairwoman Liz Forgan said: "While the funding cuts will have a severe impact on our budget, they will not dent the shape of our ambitions for the arts and audiences in this country. We are determined to take a long-term view, and to achieve the goals set out in our new 10-year strategic framework.
"Salami slicing our portfolio of organisations would never have been an appropriate long-term response, regardless of our settlement. That is why a vision for the future is so important to us.
"We want to build a portfolio where organisations, large, medium and small, are able to prosper as well as survive."
ACE, which currently distributes money to about 850 groups, will give out the new grants on a fixed-term basis of three years though there will be some flexibility.
Funding will be based "on the delivery of shared goals and the fulfilment of clear criteria" and will be handed out in two different types of subsidy.
Strategic organisations, expected to include major groups like the National Theatre, will be encouraged to "take responsibility for the development of the arts beyond their organisations".
Programme organisations will be funded on the basis of their work. ACE chief executive Alan Davey said the new funding framework would be "dynamic and ambitious, so the arts aren't going to die in this period, they are going to thrive".
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