Prime Minister Theresa May is “very disappointed” with the decision not to continue with free TV licences for the over-75s and has urged the BBC to look again, Downing Street said.
The broadcaster was set to take on the financial burden of providing free licences for over-75s from the Government in 2020.
After a review, the concession will now be available only to households receiving pension credit.
Mrs May’s official spokesman said: “We are very disappointed with this decision.
“We have been clear that we expected the BBC to continue this concession. We want the BBC to look again at ways of supporting older people.”
He added: “As part of the long-term funding agreement, the BBC agreed to take on responsibility for this concession in 2020 and we have been clear that we expected the BBC to continue this concession.
“In 2017/18, it received over £3.8 billion in licence fee income – more than the year before – and we have guaranteed the licence fee will increase with inflation until 2022.
“They are also making over £1 billion a year from commercial work, such as selling content abroad, which can be reinvested.
“It is the BBC’s responsibility to ensure its substantial licence fee income is used in an appropriate way so that it can deliver for UK audiences.”
Only around 1.5 million households will be eligible under the new scheme, sparking anger from MPs and campaigners.
The Government has been criticised for forcing the financial burden on to the BBC.
The deputy leader of the Labour Party Tom Watson branded the burden placed on pensioners an “outrage” and activists for the elderly warned that the move will directly impact the “sick and disabled”.
The corporation has been accused of doing the Government’s cost-cutting “dirty work”.
Mr Watson said: “It is an outrage that this Government is overseeing the scrapping of free TV licences for three million older people, leaving a Tory manifesto promise in tatters.
“I challenge all Tory leadership candidates to honour the commitment they made in 2017. You cannot means-test for social isolation.
“You cannot means-test for loneliness. Millions of elderly and isolated people will lose because of this announcement.”
Caroline Abrahams, Age UK’s charity director, said: “Make no mistake, if this scheme goes ahead we are going to see sick and disabled people in their eighties and nineties who are completely dependent on their cherished TV for companionship and news forced to give it up.
“The BBC’s decision will cause those affected enormous anxiety and distress, and some anger too, but in the end this is the Government’s fault, not the BBC’s.”
As part of the charter agreement which came into effect in 2017, the BBC would take on the burden of paying for free licences by June 2020.
From that date, following a review by the broadcaster, only households with someone aged over 75 who receives pension credit will be eligible for a free TV licence funded by the BBC.
Around 3.7 million pensioners will lose out, it is thought.
The new scheme will cost the BBC around £250 million by 2021/22, depending on the take-up.
The broadcaster said that if it bore the full financial burden of the free licences, the extra cost would have meant “unprecedented closures”.
This would have included the closures of BBC Two, BBC Four, the BBC News Channel, the BBC Scotland channel, Radio 5live and a number of local radio stations, as well as other cuts and reductions , it said.
The National Union of Journalists (NUJ) branded the decision to means-test licence fees “a wrongheaded act of sabotage by a government”, and urged the Government to take back responsibility for financing the benefit.
NUJ general secretary Michelle Stanistreet said: “Journalists and programme-makers have borne the brunt of cuts at the BBC for many years and have simply had enough of the BBC being victim to political grandstanding.”
The National Pensioners Convention (NPC) also turned on the Government following the announcement, and condemned the BBC for attempting to frame the move as fair.
NPC general secretary Jan Shortt said: “There is no doubt that the BBC has done the Government’s dirty work for it.
“Pensioner poverty is now increasing, loneliness is reaching crisis levels among older people and the BBC has the bare-faced cheek to call this fair. It’s an absolute disgrace.”
Conservative Damian Collins, chairman of the Digital, Culture, Media and Sport Select Committee, said: “The ending of historically free TV licences for all those over 75, regardless of income, will mark a significant departure for the BBC and nearly four million pensioners who don’t pay for it.
“We at the DCMS Committee will continue to monitor the BBC, and in particular the impact that this cost will have on the BBC’s future and its programming.
“The select committee intends to question the chairman and director-general of the BBC about the results of its consultation and the impact this will have on viewers and listeners.”
The free licence fee was first paid for by a Labour government in 2000.
Under the Conservatives in 2015, ministers announced that an agreement had been reached between government and the BBC, and the broadcaster would shoulder the cost.
Then media minister John Whittingdale told MPs in the House Of Commons: “We are all content that it delivers the objective of helping to reduce the deficit while at the same time giving the BBC some of the guarantees they need about their future.”