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Councils warned government today that they face "irreparable damage" to services like social care and recycling unless they receive more money from central grants.
Ministers outlined the second year of a three-year funding plan for local authorities today.
Announcing the financial settlement last year, local government minister John Healey warned that grants for the second and third years would be changed only in "exceptional circumstances".
But the London Councils body warned Healey that the country was now in "exceptional circumstances" because of the financial downturn.
London Councils warned the minster that a recession would significantly increase the workload for social care services, as more people find themselves in financial difficulty.
The financial settlement intends to give 24 of London's 33 local authorities the minimum 1.75 per cent grant.
But London Councils warned that this was not sufficient at a time when inflation is running at 4.5 per cent.
It called on ministers to deliver additional funding today to help them cope with the extra pressure caused by the "exceptional circumstances".
London Councils chairman councillor Merrick Cockell called on government to help local authorities cope with the additional financial burdens.
He explained: "London's public services could be irreparably damaged if the government presses ahead with its plans for a real-term cut in funding to our local authorities.
"The data and formula used to determine this funding were wrong a year ago - and the government's errors will now be compounded by the current economic climate."
Cockell continued: "As the impact of the downturn bites, our residents are likely to rely even more on our services, but the three-year settlement will fail to account for any of this.
"Unless the government changes the way it distributes funding Londoners, as well as local authorities, will be left counting the cost."
Dods Parliamentary Communications Ltd