The current round of branch closures has been strongly resisted by councils, who fear that many rural or deprived areas will lose their only shops as post offices shut.
Business secretary Lord Mandelson has been told of concern that the loss of the card services - a vital money-spinner for the Post Office - could spark a further round of damaging closures.
Local Government Association chair Margaret Eaton (Con) and London Councils chair Merrick Cockell (Con) wrote: “For many people, the post office is the lifeblood of the high street and losing it would rip the heart out their area.
“Many people, especially the elderly, still conduct their financial affairs in cash. This money is often spent at local businesses, so when the post office closes, a whole parade of shops can follow.”
They said that if the contract were removed from the Post Office “councils will campaign in force to ensure that government funds are made available so that post offices across the country are saved from closure”.