The annual Mathew Street Festival is to be replaced by the smaller Liverpool International Music Festival, the council has confirmed.
This year's event over the August bank holiday will have two stages at Pier Head and the Philharmonic Orchestra will play at Sefton Park.
The city council said the changes cost it £320,000 a year less.
The festival, which has been running for 20 years, had previously attracted up to 200,000 revellers.
Mayor of Liverpool Joe Anderson said: "After 20 years of Mathew Street Music Festival it feels right that the event evolves into a refreshed event which will have mass appeal.
"Over the years the original festival has become more high-profile and as a result it became one of the most costly to stage.
"It simply isn't affordable to continue funding this event when we are facing cuts of more than £149m over the next four years."
Mathew Street Music Festival cost around £800,000 a year, and the budget for Liverpool International Music Festival is around 40% less, the council said.
The event will be part funded by Arts Council England.