The way the arts are financed in England is to be transformed with the introduction of an applications system from the main public funding body.
Arts Council England, which distributes cash to about 850 groups, wants to make recipients more accountable and open up the process to new organisations.
More than 100 organisations are likely to lose their funding.
The council's current annual grant of £449m is dropping to £349m by 2014 as a result of the Spending Review.
Arts funding bodies in the rest of the UK are developing their own plans.
Arts Council England hands out government funding to venues across the country from local companies to the Royal Opera House.
Until now the body says there has been no process under which organisations could apply for funding.
Under the plans, all existing organisations are able to apply and new organisations will also be eligible for funding.
Decisions will be made over funding depending on the "context of a clear set of strategic priorities and the reduced resources available".
The council's head, Dame Liz Forgan said, although funding cuts will have a "severe impact" on their budget, they will not "dent the shape of our ambitions for the arts and audiences in this country".
She added: "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."
The applications will be renewed every few years.
Some successful applicants will also be asked support smaller companies by providing facilities and expertise.
The BBC's arts editor Will Gompertz says the council has given itself a "could do better report, especially when it comes to handing out taxpayers' money".
But former Arts Council chairman Sir Gerry Robinson feels the changes are misjudged.
He told the BBC: "You need to be brave enough to say 'here are the organisations we are going to fund and 'I'm sorry', here are the ones we are not'.
"When you hear about this new process, it's like a cowardly way of not facing up to the difficult decisions that you're going to have to face if the money is not available."
In Scotland, Wales and Northern Ireland the devolved governments decide how much they will spend on the arts, out of the total money they are given by Westminster.