The Welsh National Opera has warned cuts may be needed

The Welsh National Opera is thought to be among companies which will be hit.

Last month, assembly culture minister Alun Pugh announced a �2m increase in funding for the Arts Council of Wales.

But the council said much of the money had been earmarked to finance a few projects. Mr Pugh said it was up to the council how to spend its funding.

Mr Pugh said the recent funding rise had been at four times the rate of inflation.

"We have given the arts council a 9.7% increase in its cash, but how that cash is spent is entirely a matter for the Arts Council," he said.

"That's why we have an Arts Council - to make those judgements.

"The ear-marking is a very small proportion of the budget."

Funds earmarked include �800,000 for the extra costs of companies now resident in Cardiff Bay's Wales Millennium Centre, �1m for a fund designed to boost venues outside Cardiff, �90,000 for the Brecon jazz festival and �1.16m for capital funding.

The arts council has told client organisations there will be a freeze in their core funding next year and it is planning one for the next three years.

Tours threatened

In a statement to BBC Wales' Dragon's Eye programme, the council's Chief Executive Peter Tyndall admitted some companies' finances were so fragile the freeze could "precipitate them into closure".

He also said that companies affected could be ones which "otherwise would merit continued funding".

The Welsh National Opera, the dance company Earthfall and theatre company Hijinx confirmed to Dragon's Eye that they expect to have to cut back production, reduce cast sizes or curtail tours.

While speaking to Dragon's Eye, Mr Pugh also defended his decision to direct the council to support the Clwyd Theatre Cymru's mobile theatre.