The government is to close its Central Office of Information (COI) with the loss of up to 400 jobs.
The agency - which commissions public information films and government advertising and publicity campaigns - was set up in 1946.
Trade union Prospect said there had been no consultation or warning to staff about the likely redundancies.
The COI's London head office will bear the brunt of job cuts, the union has said.
The organisation is best known for producing public information films - such as fire safety cartoon Charley Says or the Green Cross Code ads - but it also appoints advertising agencies and handles media buying on behalf of most government departments.
The bulk of the government's advertising spend - which last year topped £500m - was coordinated by the COI.
But it also handles regional government news announcements from offices in Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Leeds, London, Manchester, Newcastle, Nottingham and Plymouth.
The Cabinet Office, which says it has cut spending on advertising and marketing by 68% to £168m in the past year, said last May that the COI would remain an important body because of the discounts a large central organisation could get on advertising campaigns.
But ministers have had a change of heart after a review by Matt Tee, former permanent secretary for government communications, which recommended replacing it with a new communications centre.
Government sources say scrapping the COI will remove an unnecessary layer of management - with individual departments able to deal directly with the advertising agencies working for them.
And there will still be a "roster" of approved advertising agencies, appointed by a new procurement board based in the Cabinet Office, to ensure the government can get the best deal for taxpayers when it buys marketing services.
"This government has slashed unnecessary spending on communications," said Cabinet Office minister Francis Maude.
"These important and significant changes to government communications structures are designed to reflect this and to save more money by cutting bureaucracy and reducing duplication.
"This does not mean the end of vital and cost-effective marketing campaigns, such as those campaigns that save people's lives.
"However, it does mean that communications spending in the future will never again get out of hand and instead will be more transparent, better co-ordinated and less bureaucratic."
Important campaigns on health or recruitment to the armed forces would continue, he added.
But Prospect said COI staff were "shocked and devastated" by the decision.
General secretary Paul Noon said the news had come "completely out of the blue".
"Across government, ministers are centralising finance, HR and procurement in order to save money and cut duplication," he added.
"At COI, a shared service that has worked well and is respected by the industry in which it operates is about to be chopped into little pieces. It makes no sense at all."
Last year COI made 270 staff redundant in a major restructuring exercise, work which Prospect said now appeared to have been "a complete waste of time".
Mr Noon added: "Far from saving money, the cuts to COI will leave most government communications in the hands of media agencies who are certain to be more expensive than in-house professionals."
Mr Tee also called for a 15% cut in the government's total communications staff of 6,848 employees.
The COI's closure is not likely to go down well among Britain's advertising agencies - even though the government insists it is about saving on administrative costs rather than slashing budgets even further.
Hamish Pringle, director general of ad agency trade body the Institute of Practitioners in Advertising, said: "We can only hope that the new regime being put in place will never forget that the campaigns the COI, their clients in government and their agencies produced have saved many lives and saved millions in taxpayers' money."
He said the COI had "spent 65 years learning about how to use advertising and marketing communications to help achieve policy outcomes - let's hope this invaluable history does not become bunk".