The channel’s authority said it was launching a judicial review of what it described as a decision to “effectively merge” it with the BBC.
It said it had no prior knowledge of discussions between the BBC and Culture Secretary Jeremy Hunt before news of the plan emerged last night.
Sources said the BBC will take over funding of S4C as part of a deal hammered out ahead of today’s Comprehensive Spending Review (CSR) which will see the licence fee remain at £145.50.
S4C chairman John Walter Jones said: “The effect of the financial cuts agreed between Jeremy Hunt and the BBC will have a disastrous effect for viewers across Wales, and this at a time when the BBC has already cut spending on both English and Welsh language programming in Wales.
“Under such an arrangement it is inevitable that Welsh language television would have to compete with every other BBC service and the S4C Authority believes that this would pose a serious risk to the provision of Welsh language television.
“I am astounded at the contempt that the London Government has shown not just towards S4C, but also towards the Welsh people and indeed the language itself.
“I was informed of these ill-conceived plans by Mr Hunt, and was told that it was a non-negotiable agreement, only after they were leaked on the BBC last night.
“This is no way to conduct public affairs and surely is an affront to the good conduct of public policy and the democratic process.”
He added: “The S4C Authority is unanimous in its desire to seek a judicial review of Jeremy Hunt’s decision and the way it was taken behind closed doors without any kind of consultation with S4C.”
Threats to S4C’s budget have alarmed ministers in the Welsh Assembly Government.
The Department for Culture, Media and Sport (DCMS) last week said it would change the way the channel is funded, breaking a long-standing link between the broadcaster’s annual grant and inflation.
The troubled broadcaster saw the sudden departure of its former chief executive Iona Jones in July.