Arts Council England (ACE) is having its budget cut by almost 30% in the government's Spending Review.
The Arts Council - which distributes money to hundreds of arts venues, theatre groups and galleries - said the cut would have "a significant impact on the cultural life of the country".
The 29.6% cut will see ACE's current government grant of £449m drop to £349m by 2014.
The Arts Council is also being asked to make a 50% cut in its administrative costs.
In addition, funding will end for Creative Partnerships (a school arts programme) and funding will be cut for the British Film Institute by 15%.
Alan Davey, ACE's chief executive, said: "This cut will inevitably have a significant impact on the cultural life of the country.
"The Secretary of State has asked us to try to ensure that funding for arts organisations is not cut by more than 15% over the next four years - the tipping point that we identified to the Chancellor some months ago."
He said the Arts Council would now meet to consider the overall position on 25 October.
"We will now be analysing the details of the settlement and the consequences for the arts in this country as a whole," Mr Davey said.
The BBC's Arts Editor Will Gompertz describes Arts Council England as "a big loser" in the Department for Culture, Media and Sport (DCMS) cuts.
He said: "They have to fulfil two specific requirements - to reduce administrative costs by 50% and only pass on 15% cuts to their regularly funded organisations.
"This is likely to mean the closure of some regional arts offices and a significant reduction in the Arts Council projects fund which enables them to support major events such as the Manchester International Festival."
Michael Boyd, artistic director at the Royal Shakespeare Company, said: "This will be a big blow to theatres - especially those who will also be losing local authority funding - and audiences will be the poorer. We are concerned that the settlement for the Arts Council doesn't allow it sufficient room to manoeuvre."
Culture Minister Ed Vaizey told the BBC: "I think that the Arts Council will still be an effective organisation. It will have to be a leaner organisation and I think it will be difficult, but I'm very confident that the chief executive Alan Davey is capable of delivering those savings."
BBC News
In other words, theatres will close, arts organisations will fold, there will be less dance, theatre, opera, performance of all kinds and many companies will fold.
The arguments for protecting arts funding were strong but have not been heard. This government will leave a bitter legacy of cultural death for relatively small savings. The arts make far more money than they cost.
A victory for short-sightedness.
