A controversial scheme to build waste plants across south-west London is facing the axe after £225m of funding was cut by the Government.

More than 200,000 tonnes of waste will head to landfill sites if the partnership between Sutton, Croydon, Kingston and Merton councils cannot find replacement funding to prop up the £1bn contract.

The four councils, which make up South London Waste Partnership (SLWP), are taxed £48 a tonne to send waste to landfill under EU regulations – which is increasing by £8 each year.

A senior council source involved with the programme, who did not wish to be named, said it was likely the group would have to “muddle through” with a smaller scheme while it tried to find funding for the full project.

Cormac Stokes, chairman of SLWP management group, said: “We are disappointed.What is most regrettable is the reasons behind the decision have not yet been made clear.”

He said SLWP had worked hard to ensure bids to build facilities would be affordable even without private finance initiative credits, and that it would only sign a long-term deal if it was cost-effective.

The Department for the Environment, Food and Rural Affairs, which decided to cut the project, said it was no longer needed to meet the country’s overall EU landfill targets.

Bids to deal with the waste from Veolia, Viridor and WRG are being chewed over by SLWP, with a site near Beddington Farmlands remaining a candidate for a new facility.

Final tenders were expected to be submitted in April 2011 with the winner announced the following July and new facilities operational by spring 2014.