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The funding of 32 organisations by the Arts Council of Wales (ACW) is to stop following a spending review.

It has said that funding to some groups, such as the Hay Festival and Theatr Harlech, must stop or be reduced so others can be properly supported.

The ACW has announced that annual revenue funding currently given to the groups will end next April.

Funding to 71 organisations, including orchestras, arts centres and community groups, is expected to go ahead.

The announcement comes amid pressure on public funding due to the budget deficit.

Among those affected are the Hay Festival of Literature and Art, Llangollen International Musical Eisteddfod, umbrella body Voluntary Arts Wales, Theatr Harlech, Pavilion Theatre Rhyl and Oriel Wrecsam.

The ACW is due to learn in December how much funding it will receive next year from the Welsh Assembly Government.

The 32 groups affected by the decision will be able to receive support from a transition programme and will still, in future, be able to apply for project funding.

ACW chair Professor Dai Smith said: "We're not naive. Wales will have to make cuts in public spending, and the assembly government will have its own choices to make about its funding priorities.

"We hope to persuade them of the prime value of investing in the arts as a key social and cultural driver for 21st Century Wales."

The announcement marks the start of the first phase of a major overhaul of arts investment following a detailed funding review.

Prof Smith added: "We're acting today to keep the arts vibrant and strong for tomorrow.

"We're taking bold decisions to ensure that the best of the arts in Wales thrives in the future.

"By making clear our priorities, investing funds where they're most needed and deserved, we're setting the foundations for the longer-term success of the arts.

"We want the arts in Wales to thrive, not just survive."

Under the new strategy, ACW has pledged to support a network of organisations working in English and in Welsh.

It said it wanted more people to develop their own creativity by taking part in community activities and also aims to promote Wales' reputation in the arts abroad.

The 71 groups it proposes to fund in 2011/12 include international arts prize Artes Mundi, Welsh National Opera and the 91Èȱ¬ National Orchestra of Wales.

"We've looked carefully at what we can support," said Prof Smith.

"It's never been about cuts, it's been about using taxpayers' money well.

"We're not using the worsening economic climate as a convenient excuse, nor are we deflecting responsibility onto potential government funding cuts that might come at some point in the future.

"These are our decisions, and we take responsibility for them."

As well as hoping to confirm funding in December, the ACW will at the same time announce how it plans to reduce its own administrative and running costs.

The ACW currently provides just over £23.5m to revenue funded organisations, as well as distributing funds from the National Lottery.