The High Court has ruled a decision by Leicester City Council to cut funding to voluntary groups is unlawful because full consultation was not completed.
Six organisations took court action after the council slashed its voluntary sector funding by �1.5m in 2004, rising to �3.1m over three years.
Councillors have been ordered to review their decision after further consultation has been carried out.
The outcome of the case has saved 31 groups from closure.
The council had claimed the groups were given plenty of warning that their funding was going to be cut.
Leicester City Council leader Roger Blackmore said: "The groups say they didn't understand the process, I must have been on the radio six or seven times myself saying we were doing this and that we wanted them to access alternative sources of funding."
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