The new lottery is likely to differ from similar schemes in Europe with the Government insisting that all organisations receiving money raise matching sums themselves.
The Government's determination that the lottery, due to start in 1994, will not simply give handouts from the money it raises, was made clear in an after-dinner speech which David Mellor, Secretary of State for National Heritage, gave to businessmen who sponsor the arts.
He said: 'This principle of challenge funding is absolutely vital for the new national lottery, the Bill for which I hope very much we shall succeed in taking through Parliament this session.
'The worst thing which could happen is if the national lottery resources were used to stop people from going out and feeling a need either to subscribe money from the private sector or that arts organisations felt that they could go back into a dependency relationship again. That would be quite, quite wrong.'
Simon Mundy, director of the National Campaign for The Arts, said: 'This is a shock. Matching funding means private money is taken out of the system and other areas of the arts will suffer. If the projects are worthwhile then the lottery should provide the money.'
Stephen Lee, director of the Institute of Charity Fund-Raising Managers, which represents 600 charities, said: 'If this is the case, we will see a massive loss of support from the charity sector for the lottery. There will be an almighty row.'
David Simmonds, head of economic policy at the National Council for Voluntary Organisations, said, 'If this is true, then it will make it very much more difficult for charities to support the national lottery. It could be the straw that breaks the back of many hard-pressed charities.'
Peter Lawson, general secretary of the Central Council for Physical Recreation, said: 'David Mellor is shifting his ground very fast indeed. This is not how the Government heralded the lottery and not something sport would welcome.