Hundreds of charities and social service providers across Australia are facing the prospect of shutting down after they were told they no longer qualified for Federal Government funding.

The Government last year announced it was cutting $271 million from the Department of Social Services (DSS) Discretionary Grants Program over the next four years.

It also opened up its Discretionary Grants Program to a competitive tender process.

More than 5,500 new and existing charities and service providers applied for grants across 26 different funding rounds as part of that process.

But just 700 organisations, including around 100 new organisations, have been shortlisted as preferred providers and are now negotiating with the DSS for a share of the $800 million in available funding.

Doctor Cassandra Goldie from the Australian Council of Social Services said it was not yet known how many of the unsuccessful organisations, which were existing charities, would no longer be able to operate.

"We're still waiting to find out how many of these organisations, these services that have been cut, might be taken up by a new organisation. Right now we don't know," she said.

Dr Goldie said many organisations were advised they had been unsuccessful just three days before Christmas and that most would run out of money by the end of February.

"It's quite clear it's affecting community organisations right across the country," she said.

"Family services, emergency relief, housing services, as well as policy and advocacy - it's clearly large and it's clearly very deep."

The social welfare sector is now questioning which organisations will be able to step in and fill the gaps.

The Department of Social Services is still negotiating with the shortlisted organisations and would not confirm how many have lost out, citing privacy reasons.

A spokeswoman for Social Services Minister Scott Morrison said the outcomes of the selection process would be made available this month.

Community aid worker 'gutted' by funding cuts

One of the charities to miss out on funding is Holroyd Community Aid, which has been operating in Sydney's western suburbs for the last 48 years.

The emergency relief provider is staffed by a team of volunteers and hands out food and electricity vouchers, money for medication, clothes and nappies to locals in need.

Manager Narelle Morris said the charity had helped upwards of a million people over its five decades of service.

"Some people just need a little step, a helping hand," she said.

Narelle Morris (pictured right) said Holroyd Community Aid has helped upwards of a million people over its five decades of service. ( ABC News )

"A lot of people get that helping hand and they don't need to come back to us."

Ms Morris was told the organisation would no longer receive funding in an email sent from the Department of Social Services on December 22.

She received that email on January 12 on the first day back at work after the holiday break.

"We desperately need the funding to keep this place above water so the people in this area do not suffer," she said.

"I feel gutted that I'm going to see these people and I know that I can't help them."

Holroyd Community Aid will have to close down at the end of February or in early March unless it can find alternative funding.