Arts Council-funded organisations will have an across-the-board cut of almost 7% in their grants next year, it was announced today.
And they will be asked to re-apply for funding in future years as Arts Council England deals with a huge cut of 29.6% to its budget.
It amounts to a £457 million "real-terms" funding drop over four years.
Some bodies may see their funding cut off entirely from 2012 onwards, while others could see their funding go up or down as a new framework is put in place.
Two of ACE's main programmes will see a 50% cut in funding in the first 12 months to minimise the short-term impact on groups which rely on grant-aid.
The Arts Council warned of "severe cuts" today as it detailed how the slashed funding will affect its work, although it is unlikely to announce the effect on individual organisations for 2012-2015 until next year.
The funding cuts are a result of last week's Government Spending Review.
ACE said today that it would mean a 14.9% real-terms cut to the money available for the regular funding of organisations by 2014/15.
The Arts Council's National Council met yesterday to work out how to heavily to slash its spending to absorb a cut in its annual budget from £449 million to just £349 million by 2015.
Most of the cuts - around 80% - will come in the first two years because of the weighting of the Arts Council's funding settlement.
It will need to find £62.8m of savings in the 2011/12, and organisations will face across-the-board cash cuts of 6.9%. After that, decisions will be made against a new funding framework.
The Arts Council said there would be "significant cuts".
It will also have to reduce administration costs by 50%.
Major programmes will be hit next year:
:: The budget for Creativity, Culture and Education will be reduced by half, but children and young people remain an "absolute priority". In 2010, it awarded grants of £38.1 million which will drop to £19.1 million the following year.
:: Arts and Business - which encourages businesses to work with cultural organisations - will have funding reduced by half in 2011/12 and will not be funded after 2012. Resources will be redirected, developing other ways of raising funds through companies.
:: A "strategic opportunities" fund which runs alongside the portfolio of funded organisations will be cut by £21m (64%) next year. This supports work such as touring, the Cultural Leadership Programme and the Manchester International Festival and the cuts mean "difficult choices" will have to be made, the Arts Council said.
Dame Liz Forgan, who chairs Arts Council England, said: "These are severe cuts, made worse by the fact that around 80% of them have to come in the first two years of the settlement.
"We are determined to lead the arts through this tough period, using all our knowledge, expertise, and brokering skills, and drawing on the resourcefulness and imagination around us.
"For several months we have been in conversation with the DCMS, our funding partners, arts organisations and artists about how we can best support the arts in dealing with significant cuts.
"We have had to prioritise to achieve a 6.9% cut to our portfolio within a 14% cash cut to our overall 2011/12 budget.
"These measures are designed to ensure a strong and resilient future. The country needs its artists at a time like this and we are about building, as well as sustaining, our unparalleled arts and cultural sector."
Organisations which receive Arts Council funding will be asked to re-apply and decisions for 2012 to 2015 will made against new strategic aims.
It warned that some will no longer be funded while others may see their grants go up or down. However it added that some new organisations will have the opportunity to apply.
Details of a new system are to be announced on November 4 as ACE publishes a new 10-year "strategic framework" for the arts, Achieving Great Art for Everyone.
Individual funding decisions for 2012-2015 will be announced by the end of March 2011.
Alistair Spalding, chief executive of Sadler's Wells dance company, said the cuts would have an immediate effect.
And he said it would be up to larger organisations to help smaller ones which may most feel the cuts.
In 2009/10 the north London company Sadler's Wells received £2.7 million in funding from the Arts Council and Mr Spalding said planned work to its main building, in Islington, north London, would be postponed. Performances beyond its main sites would be severely cut back.
He added that greater clarification was needed on the role of philanthropy with real incentives for giving and said a more co-operative relationship between different organisations affected by the cuts was vital.
He said: "I think it is going to be up to large organisations to help smaller organisations as much as they can and we are already supporting nine of our associate artists and resident companies as much as we can.
"I think that is something we will have to be doing more in the future to help keep the ecology of the dance world going."
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