The Barnabas House refuge in King's Lynn provides accommodation for homeless people aged 16 to 30. The hostel is run by King's Lynn Baptist Church, and receives 150,000 from the Supporting People programme, distributed by the council.
A council spokesman said the refuge had applied to move from interim funding to mainstream funding, and had not been successful because it did not meet quality standards.
But he confirmed that the council has some concerns about the Christian ethos of the refuge. "If someone needs a bed for the night, we need to know they won't be turned away," he said.
Trustees will meet council representatives next week to discuss the matter.
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