Organisers of the Black Leadership Initiative say it has exceeded its targets in addressing under-representation of black staff in management and leadership grades in the sector.
The group applied for funding to enable the project to continue for three more years, but this week it received a letter to say it had been granted an extension of just months, until August.
In the letter, the Department for Education and Skills said it was concerned that the scheme's "proposed approach is not sustainable in the medium-to-long term". Instead, it wants the BLI's work to be carried out by the Centre for Excellence in Leadership.
The news came as a shock to the 120 delegates attending the first BLI conference, held this week in London. The group's chair, Stella Mbubaegbu, principal of Highbury college in Portsmouth, said: "We are devastated by the decision. We were beginning to see an upward movement of black staff in FE colleges. This means the momentum will be lost and we will be back to square one."
The BLI has received pound;700,000 from the Learning and Skills Council since its inception in August 2002. Since then it has seconded 10 black and ethnic minority staff to management positions in other colleges. Three of them have been promoted.
It has also offered training and mentoring courses for college managers, including 18 principals, and let black staff "shadow" during college inspections.
Rajinder Mann, BLI's director, said the LSC target of having nine black principals by 2009 will now be harder to reach.
There are currently just five black principals in the FE sector, and one is due to retire before 2009. Ms Mann said: "We shall have to wait to see if CEL can deliver in the same way as we have been delivering."
Kit Roberts, the LSC's director of equality and diversity, said: "The project has been successful in exceeding its targets, but it goes beyond that. It has brought black and white communities to work together. However, we are confident that CEL will take forward the good practices that have emerged from this initiative."