The Football Association is set to lose £1.6m of government funding because of a sharp decline in the number of people regularly playing the game.
Sport England, the body responsible for distributing government funding to grassroots sport, said the warning sends a "serious message" to the FA that it needs to reassess its participation strategy.
1.84m people currently play football once a week according to Sport England's Active People survey - a decline of 100,000 on April 2013 and a 10% decrease on 2005 figures.
"I think this is a serious message to the FA," Sport England chief executive Jennie Price told the BBC.
"We've invested, over four years, £30m of public money in the FA so they have a real responsibility to spend it wisely and deliver results. Taking £1.6m away is a real sign they need to do something different and I think they will take it seriously."
FA general secretary Alex Horne said he was "disappointed" with the announcement, which increases the pressure on the governing body at an already challenging time.
“It’s naturally disappointing to learn that Sport England is cutting its funding to football especially at a time when the challenges faced by the grassroots of our game are so acute," said Horne.
“It is especially disappointing as Sport England agreed and began funding our joint plan only in August last year, and today’s decision is based on measurement undertaken just two months later in October.
"It will not however deter The FA’s continued extensive financial commitment to the grassroots of the game of which this is only one element.
“The FA continues to maintain investments of a £1m-a-week back into grassroots football alone and we believe this continued commitment – which in the last year has seen growth of 1,300 new youth teams formed and playing football – will enable us to transition more young players into adult football over the next four years.
“We will of course continue to work with Sport England to understand the latest participation trends, in particular the desire for more informal and less regular formats in which to play the game.
"As the governing body it is our job to respond to these changes and to invest in programmes which meet our participants’ needs. We would obviously welcome Sport England’s continued support in this.”
The traditional 11-a-side game has been under increasing pressure in recent years, a result of a various factors including the amount of spare time that people have to play the game.
Recent FA initiatives such as Just Play or Football Mashup encourage people to get into football without a formal or long-term commitment, but Sport England wants the governing body to do more in this area.
"The FA has improved its insight into why people play football, but they now need to apply it, especially outside the traditional game, for example in the five a side market," a statement read.
"Grassroots football remains one of our biggest participation sports, so we are looking to the FA to work on a bigger scale and at a faster pace."
One obvious hurdle to increasing participation is the poor condition of the country's football facilities - identified once again this month as the number one issue facing the grassroots game.
It is a challenge that FA, who recently announced plans to work with three local authorities on a new pilot facilities project, is determined to tackle alongside its partners within the game.
“Grassroots football is played on facilities almost exclusively owned and maintained by local authorities," said Horne.
"A combination of severe weather, increased pitch hire costs and reduced maintenance spend has made this a very difficult time for clubs seeking to complete their fixtures and for individual players to value and enjoy regular football.
"This challenge – to ensure a much better provision of quality affordable grassroots facilities – is one we are determined to address."
Sport England says that the £1.6m withdrawn from FA funding will be reinvested in other grassroots projects.
From April it will be inviting bids from cities interested in becoming a grassroots ‘City of Football’, which they say will involve "working in one place to create a whole range of new opportunities to encourage more people to play football regularly and sharing the insight with the FA to help it grow the game."