Welsh National Opera (WNO) has warned savings will still have to be made although it is "very pleased" with its Arts Council of Wales funding.
WNO will get an extra £250,000 support in 2011/12, however its single biggest backer, Arts Council England, has already announced a £500,000 cut in its support.
Peter Bellingham, WNO managing director, said savings would be made in "internal efficiencies".
The focus would "entirely" be on providing an "interesting, varied programme" which appeals to the "widest range of audience", he added.
Other WNO income comes from a variety of sources including ticket sales, fundraising and individual supporters.
The Arts Council of Wales is increasing funds to many of the 71 organisations it supports despite government cuts.
However, five groups will receive less money and the arts council must save on its running costs.
The WNO's grant is increasing from £4.5m to £4.75m, but the Arts Council of Wales has made clear the extra cash was to support the company's work in Wales and not to compensate for the money lost from England.
Mr Bellingham said: "We're very pleased with it and very grateful to the arts council for the increase.
"It's a welcome increase but a necessary one because of the pressure on the arts. The arts in Wales have been on standstill funding for the past three years."
He said the funding was necessary to allow WNO to maintain its current status.
"What I would say in defence of our funding is that WNO acts at the very highest level in terms of quality and reputation," he said.
"We represent Wales on a world stage. The level of funding we get is critical to our ability to operate at that level of world-class quality."
The increase comes just a couple of months after WNO was told its backing from Arts Council England would fall from £6.8m to £6.3m.
There is also concern about how the funding from England, where the company tours extensively every year, will fare after 2011/12.
"There is a process within England where a review of its portfolio takes place similar to what Wales has been through," said Mr Bellingham.
"That will determine the level and nature of funds for 2012/13 onwards.
"I think it's very important we make a strong case to the arts council [in England] to continue to support us and to maintain the support at the highest level it can within its overall cuts.
"The Arts Council of Wales decision will be a contributing factor."
WNO performs in both Wales and England as well as internationally, and has a permanent company of 250 people.