Local government minister John Healey announced a new formula would be used to distribute money to councils.
The move will bring an end to "damping", which took the edge off the formula by guaranteeing local authorities a minimum amount of funding.
But London Councils said the formula was "technically flawed". Its chairman Merrick Cockell said it would unfairly discriminate against urban areas. He said inadequate figures on migration mean that population statistics in many urban areas do not reflect the actual population. Simon Milton, chairman of the Local Government Association, said: "Many council leaders will be scratching their heads as they try to work out how to deliver ever better services for local people with less money and with greater demands on services than in recent years."
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