The federal government announced the funding change earlier this week, saying it was taking steps to create the conditions for healthier, more self-sufficient aboriginal communities.
But federation vice-chief Morley Watson said the move is a deliberate attempt to weaken the group.
Watson said the cut flies in the face of a conversation held with Prime Minister Stephen Harper earlier this year, in which he said Harper promised to invest in young aboriginal people.
"We feel that rather than cutting budgets, we feel now is the time to invest in First Nations people and communities," Watson told a news conference Thursday.
"We can't understand why they would do the opposite and start cutting back on budgets when we think the time is to invest."
The federation, which represents 74 First Nations in Saskatchewan, said it will see its funding cut to $500,000 in 2014-2015 from its current $1.6 million.
Watson says no immediate cuts to services or staff will be made as the federation takes some time to explore its options.
"We are in the process of having our senior people put together some scenarios, put together some options," he said.
"When we feel that we have some options that limit the impact on what we are doing for our First Nations communities, we'll present those to our leadership. We'll discuss it with them and I am sure they'll give us direction."
The Assembly of Manitoba Chief also decried the cuts, calling them "an attempt to silence the political and advocacy voice of First Nations people."
The group said it estimates 80 per cent of its core funding will be lost and could result in layoffs of more than half its staff.
"The work that we do at AMC advances the inherent and treaty rights of First Nations people," said Grand Chief Derek Nepinak.
"We have at times been vocal critics of federal policy and prescriptive laws. Without the funding currently received, the ability to confront policymakers and inform legislative processes in Ottawa will be severely limited."
(CJWW, The Canadian Press)