The Northern Ireland Human Rights Commission must save £300,000 as part of a budget squeeze.
Its funding is to be slashed following the Comprehensive Spending Review (CSR).
Chief Commissioner Monica McWilliams, who is due to retire next year, said: "This will constitute a regressive step by the UK Government in protecting human rights in Northern Ireland. The practical effect of proposed reductions to the commission's budget risks a return to the situation that existed prior to 1998 as a de facto status quo."
The commission was established following the 1998 Good Friday Agreement and is an important part of the peace settlement.
Northern Ireland Secretary Owen Paterson has rejected a separate proposal for funding from the Atlantic Philanthropies because it is for work which falls outside the commission's remit, adding it could threaten its independence.
Mrs McWilliams wrote to Mr Paterson earlier this year. She said: "Commissioners cannot comprehend how you expect this institution to introduce cuts of £300,000 when simultaneously you will not permit a business case to be submitted which, had it been successful, would have brought substantial financial resources into the commission."
Mr Paterson said it was entirely reasonable in the current financial climate to expect this level of savings from a body with accounts for almost 7% of the Northern Ireland Office's budget, at £1.7 million.
The Northern Ireland Secretary added: "The decision to make efficiencies is in no way an attempt to single out the commission or to attempt to curtail or diminish its functions, rather it is a necessary measure in order to implement one of the key priorities of the Government of which I am part, to reduce the budgetary deficit."
He said the CSR would not affect the commission`s independence and would not reduce its capacity to that of its predecessor organisation. He pointed to the commission's much reduced budget in previous years, compared to its current level as evidence of this.
Mr Paterson added: "In the light of these facts I cannot accept the commission`s argument that any cuts would adversely impact on the delivery of its statutory functions. Even taking into account the powers the commission acquired under the Justice and Security Act 2007, it has previously delivered its functions via a far smaller budget."