Elizabeth Williams, head of the government's pupil participation division, revealed the plan in a letter sent to youth service stakeholders last week.
In the letter, Williams said that the proposal is part of plans to improve Wales' public services and would lead to improved support for youth work. "We are determined to deliver a commitment to enhancing the quality and quantity of youth work and skills for working with young people," she added.
The agency was established in 1992. It has a budget of about 850,000 a year, 95 per cent of which comes from the Welsh Assembly Government.
The removal of this funding would force the agency to close and jeopardise about 15 jobs.
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