The Commission for Racial Equality (CRE) is blocking grants to ethnic minority projects that fail to promote "Britishness" and integration.
Trevor Phillips wants an end to the term 'multiculturalism'
Last week, CRE chairman Trevor Phillips sparked a debate when he said the term "multiculturalism" should be scrapped.
CRE commissioner Khurshid Ahmed told BBC News Online the Commission felt they had to change their grants policy in the light of "global events".
Over £5m in grants is due to be handed out soon under these policies.
Mr Ahmed said a review of grants procedure had been under way for some time, but the implementation coincided with Trevor Phillips' arrival.
"In the wake of what is happening globally - global events - we feel a new emphasis is needed.
"We want to instil a sense of Britishness. The project has to have an element of integration and an indication that it will lead to community cohesion.
"We are not funding any organisation which reinforces separatism. We will not encourage the emergence of isolationist groups."
Last week, Trevor Phillips said the term "multiculturalism" was of another era as the term suggested "separateness" and was no longer useful in present-day Britain.
Mr Ahmed agreed the comments marked a significant shift of emphasis for the CRE.