A £180m-a-year hardship fund providing emergency help for low-income families who suffer sudden financial crisis as a result of domestic violence, ill-health or natural disaster such as flooding is to be scrapped, it has emerged.

Technical documents released just before Christmas suggest the Department for Work and Pensions plans to cut its cash allocation to local authority welfare assistance schemes in 15 months' time.

Charities warned this would lead to a postcode lottery in local welfare help and trigger a rise in the number of people becoming dependent on loan sharks or charitable support, such as food banks.

Matthew Reed, chief executive of the Children's Society, said the removal of government funding for local crisis schemes was alarming. "This is yet another blow to what was once a critical safety net for families facing such unpredictable emergencies and disasters as flooding, or simply running out of money to buy food for their children or feed the electricity meter.

"We urgently need a clear commitment from government to provide local authorities with sustainable funding to support families facing an unexpected financial crisis. Without this, many more families will be forced to turn to food banks, or to use loan sharks or high-cost money lenders."

Local welfare assistance schemes were set up in 152 local authorities in England in April, after the old, nationally administered social fund was "localised" as part of the Welfare Reform Act.

The schemes are comprised of two elements – crisis support, which is designed to help penniless people with vital short-term expenses such as food or clothes; and community care grants, which would help people in severe crisis obtain basic living essentials such as beds and cooking equipment.

The ending of the £180m funding stream in April 2015 is likely to lead to a sporadic provision of crisis help because some councils, which have no statutory duty to provide local welfare, might decide to close their schemes altogether.

A DWP spokeswoman confirmed that it would no longer fund the schemes after 2014-15, saying that future arrangements were a matter for the Department for Communities and Local Government (DCLG).

Although the DWP had always made it clear there were no guarantees of funding after 2014-15, it had promised to review the progress of the schemes before taking a decision on future funding.

It confirmed to the Guardian on Friday that it would carry out the planned progress review of local schemes in the next few months, but it would be up to councils and the DCLG to act on its findings.

The DWP has always claimed the fund was ineffectively targeted, and that councils are best placed to judge how much to allocate to local crisis welfare provision.

A spokeswoman for the DCLG said that from 2015 local welfare is to be funded from local authority general funds.

Though some councils will continue to fund some kind of local crisis fund, many will decide they can no longer afford it. In November, Nottinghamshire county council proposed to scrap its £2.1m welfare scheme in April as part of a £151m cuts programme.

Local welfare schemes have proved controversial because most councils have refused to give out cash loans, which were available under the social fund, but have instead provided "in kind" support in the form of food vouchers, and referrals to food banks.

Many councils have set strict eligibility criteria – many exclude applicants who have received benefit sanctions, while others refuse to help low-paid working families – meaning that many applicants have been turned away.

A recent survey suggested the harsh criteria meant many councils had massively underspent their funds so far this year despite evidence of huge demand.