Arts Council England admitted today that 600 arts organisations are likely to be denied funding as it begins the task of processing applications under more straightened circumstances.
Giving evidence to the culture select committee, Dame Liz Forgan, the council's chair, said the 1,340 applications would be judged by 30 March, with no opportunity for appeal except through judicial review.
The council's chief executive, Alan Davey, declined to speculate on how many organisations might go under as a result of rejection, saying some would be able to "shrink, recoup and come back" for funding next year or seek out alternative sources.
He said the council would direct relevant applicants towards lottery funding where appropriate.
Forgan said no organisation was off the table for potential cuts, including the larger opera houses and orchestras based in London, hinting that funding priority could be given to smaller organisations, particularly those working with young people.
"Nothing too terrible will happen to the great established institutions if our funding to them is cut, but if we stop our funding to young talent then a whole generation of artists and audiences could be lost," she said.
It is the first year the arts council has had an open application process, forcing long-term recipients of funding to compete with new applicants. A spokesperson said track records would be taken into account but new organisations would be "on a level playing field" with the rest.
Forgan told the select committee the cuts were "tough but fair and decent" in the context of the recession, pointing out that museums faced similar cuts. "We never said we had a worse deal than anyone else. It's not our job to moan," she said.
Many of the 850 organisations currently funded by the arts council are suffering cuts from other sources too, particularly local authorities. The arts council's budget was cut by 30% in the October spending review, 14.9% of which is set to be translated into direct cuts in funding to other arts organisations over the next four years.
Forgan said she was "not ruling out" selling works in the national collection, which is loaned out to galleries, but said it should only happen to maintain the collection itself, "not to pay the rent".
She said the management of libraries might suffer now that the council had taken over responsibilities from the now defunct Museums, Libraries and Archives Council. Forgan said she was confident the arts council could complete the role competently, but libraries "couldn't be run on the same basis" given that it had been given £3m to perform a role for which the MLA got £13m.