Star chamber at the Young Vic

The organisation's chief executive, Peter Hewitt, faced a tidal wave of anger over grant cuts from 500 actors packed in the Young Vic.

Ian McKellen, Kevin Spacey, Sheila Hancock, Alison Steadman, Jonathan Pryce, Joanna Lumley, Caroline Quentin, Roger Lloyd Pack and Samantha Bond were among those present as he was questioned over the move to axe or reduce funding to a fifth of the bodies the council currently funds. Fifty-three are in London.

To cries of "shame" and amid mounting anger, Mr Hewitt defended the move, saying it was absolutely right the council should make judgments on who merited funding on the basis of excellence and innovation.

The timing was tight this time, he said, as the spending settlement with the Government was agreed much later than hoped.

But while seven per cent of theatre bodies were being cut, the remainder would get a seven per cent increase in cash in the next three years. "This does not amount to a cull," he said.

But he faced withering criticism from speakers led by actors including Patrick Malahide and Samuel West.

Mr Malahide said the council had become an "agency for social change" and was no longer fit for purpose.

"If you want innovation why are you removing money from the Bush Theatre which has done more to nurture new writing than any other small theatrein Britain?"

Mr West said he found some cuts cowardly. The Orange Tree in Richmond was facing a £60,000 cut because the borough was regarded as well served by theatres.

But it would mean the end of its young directors training scheme which has produced the new heads of the Southwark Playhouse and Regent's Park Theatre.

West questioned the knowledge and skills of those making the decisions. He suggested they seemed to be on the basis of "who is vulnerable; who might be in or out of fashion?"

But he said: "Cut funding to our smaller spaces and you eventually starve our larger ones to death."

Christine Payne, general secretary of Equity, demanded a thorough review of the "secretive and divisive" decision making process before the arts were irreparably damaged.

"Until that review is completed, the status quo should apply and the current funding process should stop."

Outside the meeting, Caroline Quentin said she feared for the effect on children's opportunities to see theatre. "For children, our smaller theatres and our regional theatres are vital to educate and enlighten and entertain."

Alison Steadman said: "I just can't believe it. The West End is full of musicals. We've got to protect our fringe theatres and our out-of-London theatres because these huge cuts are going to mean a huge percentage are going to go to the wall."

Roger Lloyd Pack said he was pleased that James Purnell, the Culture Secretary, was demanding excellence and a removal of box-ticking targets.

"It's terrific they got more money. That's brilliant. But a lot of these places that are rumoured to be facing cuts have produced notable work over many years."

Josie Rourke, artistic director of the Bush Theatre in west London, called for an immediate halt to the process and for the publication of the data on which decisions were being made.

She said the theatre had received documents after a request under the Freedom of Information Act which showed the council had under-estimated its audiences by two-thirds. "There were serious factual errors in the data," she said.

Also in the audience were Richard Briers, Miriam Margolyes and Harriet Walter.