Some 9,000 young people will be turned away from courses as the Entry to Employment programme (E2E) is left with the same pound;240m budget as last year.
The Learning and Skills Council is refusing to increase the scheme's budget to cater for unexpected increases in student numbers.
E2E provides training in subjects such as motor mechanics, engineering, childcare, basic skills and citizenship.
Connexions, the advice service for teenagers, has relied heavily on E2E to rescue some of the most disadvantaged youngsters it deals with. But this year some training providers have been forced to turn away Connexions'
clients because they have no places to offer.
E2E was launched last year as a series of two-year courses, so most of the cash will be needed to cater for students who are already on the scheme, severely restricting places for newcomers. There is also doubt about whether existing students will be allowed to complete their two years.
Last year, E2E started off with some 10,000 students, rising to 30,000 by the end of the year. This year it begins with 30,000, putting increased pressure on resources.
Even if emergency funding saves existing students, the Association of Learning Providers estimates that 9,000 potential recruits will be turned away.
The LSC says that E2E should offer shorter 20-week schemes to prepare teenagers for the apprenticeships. But the ALP says many teenagers are not close enough to being ready for an apprenticeship to get there in 20 weeks.
Graham Hoyle, chief executive of the ALP, has written to Education Secretary Charles Clarke and Chancellor Gordon Brown to warn that there would be social consequences if E2E did not get funding for growth.
In his letter, Mr Hoyle said: "As this programme was designed to be the main weapon in accessing and helping those not in education, employment or training, providers are baffled to know why this priority group are having their opportunities removed."
If no action is taken, he said, the Government would face the "inevitable additional costs incurred by local social services, police and other Home Office budgets" and many in the NEET group (not in education, employment or training) would be "left to fend for themselves" if there were no more cash for E2E.
John Brennan, chief executive of the Association of Colleges, said:
"Connexions has been told to target this NEET group, something it has done very successfully - but this is an impossible situation if it reaches these people only to find that they can go no further because the LSC doesn't have the resources it needs. If young people are missing out on these opportunities, we would regard that as very serious indeed."
The cuts have forced Lynn Barrett, who runs E2E at People's college, Nottingham, to cut the number of places from 125 to 50.
"These cuts will have a massive impact on young people," she said. "We were having a significant impact in re-engaging young people who didn't achieve in secondary education, helping them to progress into apprenticeships, full-time employment or full-time further education.
"The Government, in its efforts to balance the books to reach its own unrealistic targets, has made the most vulnerable members of our society pay the price."
An LSC spokeswoman said: "There is only a finite budget available and we have had to manage this runaway success."