The department stopped its grant to CABE as part of last month's comprehensive spending review. It is now discussing future arrangements with the DCLG, which also funds the organisation.
A CABE spokesman said: "We are disappointed but are now working with government and others to find a way to ensure the kind of expert, impartial design advice for which CABE has been known remains available."
DCMS spokesman Toby Sargent said that design remains a priority for the government. "Although the department would have liked to continue funding, the dreadful financial position meant that to protect the wider culture and heritage sectors we had no choice."
CABE will continue to function until April and has published a report with the Arts and Humanities Research Council on beauty and the built environment. The research for People and Places - Public Attitudes to Beauty involved films, discussion groups and a survey.
"We need to ensure that we are asking the right questions and using language people understand," said director of education and external affairs Matt Bell.