A charity which houses homeless 16 to 25-year-olds is losing its council funding after being told it was not offering the required level of support.
Cirencester Housing for Young People is losing its £116,000-a-year grant from Gloucestershire County Council.
It is also losing the lease on one of its three houses, which is held by Cotswold District Council.
A charity spokeswoman said she was saddened and worried about the future of homeless youngsters in the area.
Vice-chairman Sandy Price said she felt the service was being punished for offering pastoral support in addition to housing, which was not part of their contract.
"These aren't just young homeless people, but they are youngsters who have come from backgrounds where there is alcohol or drug abuse. Some of them have severe learning difficulties or mental health issues.
"We've done our best to care and look after them and now we've been told that we're not fulfilling our contract because we're doing too much.
"It seems completely ridiculous. We're being sacked for being too caring."
The councils said that they had noted a worrying rise in drop-out rates from the project and had suggested some improvements.
A joint statement said: "We have looked really closely at the services CHYP provide and found, disappointingly, that they were not giving the level of support we wanted, or fulfilling the conditions of their contract.
"Council staff tried hard to help CHYP improve, but it is clear now that a new provider is needed."
They said the change would not endanger young homeless people in the district and that arrangements were in place to appoint a new provider.