It said the plans to reallocate the budget used to maintain housing estates - known as the management and maintenance allowance (MMA) - could see London's council tenants lose£1.25bn by the time of the 2012 Olympics, enough to refurbish 46,000 homes in central London.
Westminster - which says it is set to lose over 30% of its current funding - warned it would put further pressure on social housing in central London. It said current inequalities arise because London's flats cost more to maintain than houses across the rest of the country.
Westminster has established an independent housing commission to look at the issues around social housing. The committee is chaired by Lord Richard Best, director of the Joseph Rowntree Foundation. Their findings are expected in mid September.
Angela Harvey, cabinet member for housing, said: 'This proposal is a very serious threat to housing providers in central London. The capital has unique housing problems and losing this money will have a significant effect on existing tenants as well as people on the waiting lists.
We have already lost funding to new developments in Milton Keynes and the Thames Gateway, while demand in places like Westminster continues to grow. Cumulatively these measures will place an enormous strain on social housing.'