An announcement by the charity that its charismatic leader will stand aside follows an investigation by BBC Newsnight and Buzzfeed which claimed that the Cabinet Office had concerns about the charity's ability to run itself and was withholding £3m in funding.
Batmanghelidjh told Radio 4’s Today programme that officials were briefing the media against the charity in an attempt to discredit her.
Asked about claims that funds had not been properly accounted for and the effectiveness of the charity's services was in doubt, she said: “That’s a red herring – it’s not true.
"We have had audits in the past 19 years. All of them have been clear. We have raised £150m worth of money where we have had to process it and evaluate it.”
“This is briefing to avoid the real issues which is that we repeatedly challenged governments because they are not protecting children robustly. They are attempting to discredit me so that my message is weakened.”
It is understood the charity, which has an annual budget of around £20m, has been negotiating for weeks with the Cabinet Office over a one-off grant of £3m to enable it to restructure.
The BBC reported that Kids Company was told it would not receive more public funding unless Batmanghelidjh stood aside.
Concerns about the way the charity is run appear to include the practice of handing envelopes of cash to young people visiting the office.
In a statement, Kids Company said Batmanghelidjh will be stepping down as chief executive, but will not be leaving the organisation, instead assuming an advocacy and clinical role after the appointment of a new chief executive.
The statement said that since the beginning of the year, the charity has received fewer philanthropic and public donations.
"At the same time, the charity has continued to meet the practical and emotional needs of an increasing number of high-risk vulnerable children, young people and families, who are not being supported by the statutory system," the statement added.
"This has led to an unprecedented financial strain.
"In partnership with a city-based group of philanthropists, the charity is being supported by the new government to create a more sustainable organisation and funding structure that will be better able to tolerate unpredictable income streams in the future."
While the charity said it will continue to deliver its core services to society’s most vulnerable children and young people, it will be reducing its staff levels.
Alan Yentob, chair of the board of trustees, said: “Camila Batmanghelidjh and the staff of Kids Company have created a highly effective model of care and support for the most vulnerable children in society which should be recognised and valued as a national asset.
"The board and I, with the backing of a philanthropic group, have ensured that this is protected and that Kids Company will continue to offer safety, protection and loving care to some of society’s most vulnerable children.”
Batmanghelidjh founded Kids Company nearly 20 years ago.
