The cost of supporting the monarchy to the taxpayer fell by £1.8m in the last financial year, Buckingham Palace accounts have shown.
The Queen's official expenditure decreased by 5.3% from £33.9m in 2009/10 to £32.1m in 2010/11 according to the Royal public finances annual report.
The Queen's Civil List spending fell from £14.2m to £13.7m, while there was a cut in spending on property services from £15.4m to £11.9m.
Royal travel costs rose from £3.9m in 2009/10 to £6m in 2010/11 but Buckingham Palace said the sale of the Queen's helicopter resulted in lease repayments of £1.5m.
Excluding this income, expenditure on Royal travel would have been £5.4m in that year, according to the accounts.
Sir Alan Reid, keeper of the privy purse, said the fall in spending had been achieved through increased income generation, deferral of property maintenance and a pay freeze for staff which will continue this year.
But he warned that it would be "very difficult" for expenditure to reduce "very much further" without having an effect on the Royal household's work to support the Queen and the long-term health of the estate.
"The Queen is very keen that the Royal household should continue to reduce its expenditure in line with public expenditure reductions," he said.
Further cuts in funding will mean that the budget for projects in the annual works programme is likely to be reduced from £4m in 2010/11 to £3m in 2012/13, according to the report.
"This will inevitably lead to the deferral of works and will increase the backlog," the report said.
"Furthermore, it is likely that the programme will become more reactive than planned."
The reduction in funding means that "key" projects will not be undertaken, the report said.
These include more extensive renewal of lead and slate roofs at Buckingham Palace and Windsor Castle - it is likely that only one area will be achieved in each financial year at each site rather than three.
Refurbishment of the state rooms at Buckingham Palace and Windsor Castle will not be undertaken, the report said.
Other projects affected include the replacement of existing heating and electrical services at Buckingham Palace, with associated asbestos removal, which will now take 15 to 20 years to be completed.
Buckingham Palace said the figures for the Royal public finances were calculated using the new sovereign grant system which will replace the current funding streams from the civil list and grants-in-aid for Royal travel, palace maintenance and communications.