The UN, World Bank and other international bodies that receive money from the UK have been told to prove they deliver results or face cuts.
Britain's overseas aid budget is to be protected from tough spending cuts planned by the new government.
But International Development Secretary Andrew Mitchell said aid recipients must demonstrate value for money.
Britain spends £3bn a year, about half of its overseas aid budget, through international bodies.
The 30 organisations that receive funds from the UK include the World Bank, the UN, the Red Cross, the Central Emergency Response Fund and the Global Fund to Fight Aids, TB and Malaria.
All of these bodies are now on notice to prove that the spending works or face cuts.
Those that can show that money delivers results and "have a proven impact on the ground" will be rewarded with more cash from Britain.
Mr Mitchell said: "Many of these organisations will be critical to our fight against poverty and that is why I want to direct money towards those bodies that share our aims and have a proven track record of delivering results.
"There are over a billion people living in extreme poverty around the world. We believe it is our duty to ensure we get as much as possible out of every pound of British aid."
Some organisations working in the poorest countries or conflict zones are already facing severe shortages of funds, according the BBC's International Development Correspondent David Loyn.
The Refugee Agency UNHCR, for example, has only 10% of what it needs in Somalia, and last year conducted just the sort of results-based review that is now demanded, he adds.
But he says Mr Mitchell is acutely aware that his is one of only two government departments whose budgets have been ring-fenced, and he wants to show that it delivers value for money at a time of such widespread cuts across the rest of British government.
Much of the review will focus on bureaucracy, in an effort to make UN organisations more efficient.
Mr Mitchell is also concerned some agencies overlap with each other, have high costs, do not deploy enough staff into the field or fail to provide hard evidence money is being used effectively.
The international development secretary has written to the institutions concerned to alert them to the Multilateral Aid Review, which will begin immediately.
He also discussed the plan with the head of the World Bank in London last week.
The findings of the review will be made public later in the year.
Mr Mitchell is currently in Islamabad, on what aides have described as a fact-finding visit. He earlier met Pakistan's prime minister Yusuf Raza Gilani and president Asif Ali Zardari for talks.
The visit to Pakistan is the second overseas trip Mr Mitchell has made in his new role, which aides say show it is one of his top priorities. The first visit was to Afghanistan.