The Unite union says it will halve the number of affiliate members it provides to the Labour Party this year - meaning an effective funding cut of £1.5 million.
The move follows Ed Miliband's reforms to the party's structure - including its historic ties to trade unions - which were approved at a special conference last weekend.
Unite said the party's decision had set its relationship with affiliated unions on a "new course".
Responding to Unite's announcement, a Labour spokesman said the party knew its reforms would have "financial consequences", but added it was now hoping to grow a base of "many small donors rather than a few big ones".
The Unite union is to cut its affiliation to Labour by £1.5 million, its executive decided today.
Ed Miliband should not be sucked into a pact with the Liberal Democrats and instead show the courage to rule on a minority government, Unite General Secretary Len McCluskey said.
"Labour, I hope, win the next election outright, but if they are the biggest party then my view is Ed should have the courage of his convictions and govern on a minority government," , Mr McCluskey said in an interview with the BBC's Newsnight programme.
"My view is that Ed shouldn't be sucked into a Lib/Lab pact he should have the courage of his convictions if we are the largest party, he should govern.
"And he should challenge those coalition parties to bring him down if necessary and go back to the people so that there's a stark alternative."
Ed Miliband should rule out a coalition with the Liberal Democrats even if Labour fail to secure a majority in next year's general election, one of the party's biggest backers has said.
Unite General Secretary Len McCluskey urged Mr Miliband to say he would govern alone even if the party falls short of a majority in next year's general election.
The comments come amid reports that David Cameron will make a commitment not to sign another deal in the event of a hung parliament.
Speculation that a potential alliance between Labour and the Lib Dems has increased in recent months, after Nick Clegg praised the way the opposition had "changed" under Mr Miliband's leadership.
As George Osborne claimed that EU rules on bankers' pay would lead to a "Fred Goodwin-style situation", Unite said the Chancellor "must not rubber stamp the corporate greed" at RBS, as the majority taxpayer-owned bank reportedly seeks to double its cap for bonuses to senior staff.
Thousands of RBS staff are struggling to feed their children and pay their utility bills as they earn so little. They, along with taxpayers, have every right to expect this Government to block any attempt to further reward these senior bankers.
The hypocrisy of George Osborne in claiming that 'it is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees' will disgust working people.
His decision on RBS will show his true colours.
Technology giant Hewlett-Packard plans to cut 1,100 jobs at the start of 2014 in Bracknell, Sheffield and Warrington, said the Unite union.
The Prime Minister has ordered an inquiry into the tactics used by trade unions, following claims of intimidation during the dispute at the Grangemouth oil refinery, in Scotland.
But the move has been dismissed, by union leaders, as an election stunt.
ITV News Political Correspondent Carl Dinnen reports:
Shadow health secretary Andy Burnham said he wanted reassurances that that a Government-backed inquiry into the conduct of industrial disputes was not a "political call".
"Of course if there's been intimidation it's unacceptable and that should apply to unions as well as employers," he told BBC One's Sunday Politics show.
"I think I need reassurance that this isn't a political call by Mr Cameron designed to report near the election, so you know we'll see how this develops."
TUC general secretary Frances O'Grady has hit out at the Government's commissioning of an independent review into industrial disputes - and union tactics in particular - saying:
This has nothing to do with good industrial relations and is simply part of the Conservative Party's general election campaign.
We already have some of the most restrictive union laws in the democratic world. Too many Conservatives seem to think that cheap anti-union jibes will detract from the cost of living crisis. The polls suggest they are wrong.
Union officials have dismissed the Government-ordered independent inquiry into industrial disputes as politically motivated and a distraction to the "cost of living crisis".
A Unite spokesman said: "Vince Cable may not have noticed but the Grangemouth dispute has been settled. This review is nothing more than a Tory election stunt which no trade unionist will collaborate with."
GMB general secretary Paul Kenny agreed, saying the announcement "seems like another sop to the Tory backbenches".
He said the "real scandal at Grangemouth" concerned the chairman of the refinery's owners Ineos, Jim Ratcliffe, and how he was "able with impunity to hold the country to ransom".