Incentives for consumers to buy hybrid and electric cars rather than diesel or petrol alternatives have been slashed by the government, adding thousands of pounds to the price of a new low-emission vehicle.

Car manufacturers said the decision was an “astounding” move. It comes only three months after the transport secretary, Chris Grayling, published a Road to Zero strategy to curb vehicle emissions by promoting greener cars and three days after the Intergovernmental Panel on Climate Change called for an urgent switch to electric vehicles.

The plug-in car grant, which since 2011 has knocked £4,500 off the purchase price of a brand new electric vehicle, will be cut in early November by £1,000, while incentives of £2,500 to buy new hybrid cars will be abolished altogether.

The Department for Transport (DfT) has not confirmed how long the grant for electric vehicles will be available but says it will support the purchase of 35,000 zero-emission cars, likely to run early into the next decade.

More than 160,000 new cars have been eligible for the grant since its inception, of which around 100,000 were hybrids, a total subsidy to date of around £600m. The DfT said that because plug-in hybrid models, such as the the Mitsubishi Outlander, were now established and popular among consumers, it was focusing its attention on zero emission models such as the Nissan Leaf and BMW i3. Hydrogen fuel cell cars will also remain eligible.

To qualify, vehicles must have CO2 emissions of less than 50g/km and be able to travel at least 112 km (70 miles) without any CO2 exhaust emissions.

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: “We understand the pressure on the public purse but, given the importance of environmental goals, it’s astounding that just three months after publishing its road to zero strategy, the government has reduced the incentive that gives consumers most encouragement to invest in ultra-low emission vehicles.

“Removing the grant for plug-in hybrids is totally at odds with already challenging ambitions for CO2 reduction and sends yet more confusing signals to car buyers.”

Hawes said manufacturers had invested billions in new technologies but plug-in hybrids remained less than 2% of overall sales and warned that removing upfront purchase grants could have “a devastating impact on demand”.

Car dealers said the decision risked undermining progress in the low-emission sector. Sue Robinson, the director of the National Franchised Dealers Association, said it was “extremely disappointing”.

The AA said its research showed the vast majority of drivers cited the purchase price as the main obstacle to owning an ultra-low emission vehicle. Jack Cousens, the AA’s head of roads policy, said: “The government wants to end the sale of petrol and diesel cars but scrapping grants for low-emission cars may well stall their progress.”

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Any rush by consumers to buy while the grants are still available at the current rates could result in the 9 November deadline being brought forward, the DfT said.

Darren Shirley, the chief executive of Campaign for Better Transport, said it was “the wrong signal for the government to send”. He added: “Plans to ban petrol and diesel cars are an important step towards cleaner air but electric vehicles play a vital role and help is needed in making them more affordable in the short term.”

Around 35,000 Outlanders are now on UK roads, the most popular model of hybrid to have benefited from the grant until now. More than 40,000 cars so far this year have qualified for the grant, up 23% from last year, according to SMMT figures. Just over a quarter of those are pure electric vehicles, which will remain eligible for the reduced funding.

The DfT said it would also establish a £2m fund to subsidise new e-cargo bikes, offering up to £5,000 for businesses who replace older, polluting vans with the zero-emission cycles.