Amsterdam has long been famed for its relaxed approach to prostitution and soft drugs, making the Dutch city one of the most popular destinations for tens of thousands of Britons on stag and hen parties.

But all that may be about to change. As part of a major 'clean-up' of the city centre, the local authorities yesterday unveiled plans to close half of the brothels and the little coffee shops where cannabis can be bought and smoked, prompting warnings that they will cost the city dear as visitors head elsewhere.

Although prostitution has been legal for eight years, and possession of small amounts of drugs has long been tolerated, the latest moves mark an escalation in the culture wars in a country that many of its people believe has become too liberal.

At the heart of the new initiative is the city's drive against the organised crime that it claims gravitates to the areas with high concentrations of 'coffee shops', brothels and the 'windows' where women advertise themselves.

While Amsterdam has long been held up as a model of the argument in favour of the legalisation of soft drugs and the sex trade, its critics counter that the windows and coffee shops mask the violent reality of organised crime. 'By reduction and zoning of these kinds of functions, we will be able to manage and tackle the criminal infrastructure better,' the city said in a statement.

Opponents of the clean-up - including coffee-shop owners and the prostitutes' union, De Rode Draad (Red Thread), which represents 20,000 Dutch prostitutes - told The Observer yesterday that they believed that, far from reducing crime, it would encourage drug dealers and prostitutes to go underground in areas where they were banned.

They also warned that the new clampdown on drugs and the sex industry would have a profound effect on the economics of a city famous for both things. 'Amsterdam is the city of sex and drugs and rock 'n' roll,' said Metje Blaak, a spokeswoman for De Rode Draad, which provides health screening and other training for its members.

'Now we have no sex. No drugs. The women will go on the streets and to the hotels. It is very bad, not least in terms of women's health and safety. The mayor has not listened to the women or the coffee shops,' she added.

She also blamed the European Union for pressurising Holland into tightening its laws. 'Once we were a free country,' she said. 'Now they tell us what to do.'

Prostitution will now be permitted in only two areas, including De Wallen (The Walls) - a web of streets and alleys around the city's medieval retaining dam walls. The area has been a centre of prostitution since before the city's golden shipping age in the 17th century.

The city said yesterday it would offer retraining to prostitutes and coffee-shop employees who lost their jobs.

'Money laundering, extortion and human trafficking are things you do not see, but they are hurting people and the city. The new reality will be more in line with our image as a tolerant and crazy place, rather than a free zone for criminals,' said Alderman Lodewijk Asscher, one of the main proponents of the plan. 'We can still have sex and drugs, but in a way that shows the city is in control.

'It'll be a place with 200 windows and 30 coffee shops, which you can't find anywhere else in the world - very exciting, but also with cultural attractions. You won't have to be embarrassed to say you came,' he said.

Merlijn Boshuizen of Plan A, one of the biggest organisers of stag and hen trips to the city, is not convinced. 'We have had 7,000 people, mainly from the UK and Ireland, this year. This is won't be good for tourism. People come here because of the drugs and the windows.'

The coffee-shop owners and workers are as sceptical of the new clampdown as De Rode Draad and Boshuizen. Although cannabis is technically illegal in the Netherlands, prosecutors do not press charges for possession of small amounts and the coffee shops are able to sell it openly. However, in the last year, authorities in Amsterdam and elsewhere have subjected the coffee shops to ever-more stringent checks.

'Marco', owner of the Rastababy Café in Prins Hendrikkade, near the city's Centraal Station, said yesterday: 'It is really shitty. We want to make money and they want to close us down. The city will lose money. People come here for the coffee shops. To smoke.'

The same dismay was evident at the Reefer Café in St Antoniesbreestraat, not far from the Rembrandt Museum, where patrons can buy a pre-rolled 'White Widow' spliff for €3, or a muffin laced with skunk resin.

• Additional reporting by Mimis Chrysomallis in Amsterdam.