The government rejected the concerns and said the decision to introduce the new funding scheme was in response to sectoral needs.
“The UK government did not reallocate money from the IFI to the East-West Council,” a spokesperson said.
“These are two entirely separate entities.
“The government remains supportive of the IFI’s aims of promoting peace and reconciliation.”
A DUP spokesperson said the party welcomed “recent funding announcements”.
The Irish government said it contributed €4m (£3.45m) to the IFI in 2025.
A spokesperson for its Department of Foreign Affairs said: “We are aware that the UK government indicated they were not in a position to make the final £1m instalment of funding in 2024.
“We look forward to continuing to work with the UK in support of the IFI and hope that the UK will consider further funding to the IFI when its new strategy for 2026-2030 is launched at the end of this year.”
In a statement, the IFI said it had received financial support from a range of donors including the UK, Irish and US governments, the European Union, Canada, Australia and New Zealand.
A spokesperson for the IFI said it was “grateful for the long-standing support from the UK government and the financial assistance provided in supporting our delivery of the IFI’s current strategy”.
“We look forward to continuing to work with the UK government and our partners in delivering critical peace and reconciliation initiatives in Northern Ireland and the southern border counties,” the spokesperson added.