Up to 2,000 jobs are at risk as local authorities take on an expanded role in local development throughout the country.
Recent local government reforms drawn up by Environment Minister Phil Hogan's department propose to merge the role of rural development companies with local councils.
Thirty-six local development companies are responsible for development programmes such as the €450m LEADER programme.
Employing about 2,000 staff, the local development companies promote enterprise creation, social inclusion and training at community level.
They are governed by voluntary boards comprised of representatives from the community, statutory and private sectors, and from the social partners.
The public service recruitment embargo is likely to block integration of development company staff into the local authorities.
Brian Carty, director of the Irish Local Development Network, the representative network for local development companies nationally, believes handing control of these programmes to the local authorities is utterly contrary to the direction of local development in Europe.
"The current Irish LEADER delivery model is regarded as best practice by our European peers. Furthermore, the European Court of Auditors has been critical of excessive involvement of local authorities in other countries," he said.
Ryan Howard, CEO of SouthEast Cork Area Development pointed out that there is a 10pc boost in funding when EU programmes are delivered by community and voluntary organisations, a benefit that will be lost if the proposed alignment goes ahead as planned.
"The concept of community-led local development is very much in favour at EU level at the moment for its flexibility, independence and efficiency," he said.
"The local development companies in Ireland have delivered LEADER in this fashion for 20 years and are the object of admiration and imitation throughout the EU. We are now about to throw out all that experience, capacity and reputation."
Seamus Boland of Irish Rural Link describes as "most worrying" the prospect that the funding and functions of local development could be swallowed up by local authorities.
"There is a danger that the local community development worker could be switched to rate collection and the money spent on potholes," he said.
A spokesperson for the Local Government Management Agency refused to comment on the detail of the new arrangements for the delivery of the LEADER programme.