Hundreds of vulnerable homeless people face being turned out on to the streets amid confusion over how local authorities should interpret a legal ruling which could trigger the closure of emergency night shelters.

Some shelters which rely on housing benefit payments to fund their operations could be forced to shut after a court ruled that they do not legally constitute a dwelling, and so cannot claim the benefit on behalf of shelter users.

One shelter has been forced to shut its doors after Salford council in Greater Manchester said it would no longer accept its housing benefit claims.

The Narrowgate project was giving temporary accommodation to 28 homeless men and women each night. It shut its doors in April after Salford council invoked the ruling and cut off housing benefit payments.

On Wednesday, former residents of the shelter, who had come to the surviving day centre in Salford for a lunch of steak pie and bread-and-butter pudding, spoke of the distress the closure had caused.

Hayley Bond, 19, spent four weeks at the Narrowgate night shelter. "I was so grateful for it. It was a lifesaver," she said. Eventually she managed to find a shared flat in Eccles.

A few days later and she would have risked living rough. "It makes me shudder for all the people still out there with nowhere to go. When I came here I was hysterical. I'd lost a place at a hostel on the Monday and came here in the hope they could put me up.

"They could see I was desperate and, thank god, there was a bed for me. They sorted out my housing benefit, too, and gave me clothes."

She added: "I know Salford council are short of money, but surely they should have kept this place open? Now that it's closed a lot more people will be pushed into homelessness."

Another one-time resident, Darren Dewett, 46, saw Narrowgate as a sanctuary after his 14-month jail term.

He said: "It was somewhere for me to sleep at night – somewhere safe where I knew I had a bed for the night and some toast and a coffee when I woke up in the morning. I made friends here and it became like home.

"When you were spending every day just walking around, you could at least hold on to the thought that you'd be safe and in a bed come night-time. Now that's been taken away from us, and I can't understand why."

Darren Dewett. Photograph: Christopher Thomond for the Guardian

He insisted he was sufficiently street-wise to survive the rigours of living rough.

"I have a sleeping bag, but I've had to sleep in doorways, railway stations, bus stations – anywhere I can. It gets pretty bad out there, pretty depressing – and if I've got the money I'll have a drink to chill out.

"The closure here has hit me hard, like it's hit all of us. I'm trying not to let it drive me down, but it's a battle. This place gave people hope. It was a haven.

"The other thing it did was give us a fixed address, which you need when you're applying for jobs. Even if I get accepted for a job now, how am I going to be able to take it up?

"It just feels like they're kicking us when we're down. It's made me depressed. It might push other people to suicide."

Phil Brown, the charity's project manager, was hoping Salford council would reconsider. "They have to take their heads out of the sand and realise the terrible impact this is having on very fragile people," he said.

Salford council said it had no option but to withdraw housing benefit payments to the shelter after receiving legal advice that it would be unlawful to continue the arrangement in the light of the court judgment.

The upper tribunal ruling, made in February, found that Isle of Anglesey county council, in north Wales, was right to stop the payment of housing benefits to a claimant in respect of the periods he spent at a local emergency night shelter.

The shelter did not constitute a dwelling because the claimant had to leave in the morning, taking his belongings, and had no automatic right of return.

A spokesperson for the Department for Work and Pensions said it believed the judgment did not set a precedent, and said that how councils interpreted the ruling was a "local decision".

The spokesperson said: "In this case the tribunal found that because the shelter was only available on a first come, first served basis and claimants couldn't remain in the property during the day, it didn't satisfy the criteria for housing benefit to be paid. The tribunal was clear that their decision didn't change the law and housing benefit may be payable to claimants living in other shelters."

But the growing confusion has piled pressure on the DWP to clarify how local authorities should respond.

Blackpool council initially believed the judgment meant it would have to stop paying housing benefit to a local shelter, but changed its view after taking legal advice, dispelling fears that the shelter, Streetlife, would have to close.

Gillian Campbell, Blackpool's cabinet member for housing and public protection, said: "Night shelters play a very important role and we are pleased the support they receive via housing benefit will continue."

Another shelter has lost funding for 60% of its beds because they are deemed to fall foul of the ruling. At least 10 other councils are understood to be reviewing whether they are in breach of the law if they continue to honour claims from local emergency night shelters.

Rick Henderson, chief executive of Homeless Link, which represents UK homeless charities, said: "In the absence of government guidance, councils appear to be interpreting differently the case law on what constitutes a home.

"Not all night shelters are dependent on housing benefit payments but when they are the only form of emergency accommodation for homeless people in an area their sudden closure threatens to increase rough sleeping."

Homeless Link said it was worried that as awareness of the ruling grew, a number of temporary shelters run on similar lines to Anglesey could be affected.

Salford council said there was no financial gain to the council from the decision because the cost of housing benefit awards was met by the government. But it feared that the DWP would refuse to recompense it for payments ruled illegal.

Narrowgate said that although Salford only informed them of its decision on 24 April, it told them it would not honour any unpaid claims brought since the date of the judgment on 6 February.

Narrowgate said it had been left with a £20,000 bill. The church-run shelter said that £15 of the £25 nightly cost of a bed was met through housing benefit, meaning the shelter was no longer financially viable. It closed on 29 April and made five staff redundant.