Strutt's North Mill Museum in Belper is a landmark part of Derbyshire’s industrial heritage.
But it is set to close in September after Amber Valley Borough Council withdrew a grant worth almost £50,000.
Belper North Mill Trust said running the museum not financially viable without outside help and that it would lose around £70,000 a year if it kept the museum open.
The space will instead be let out for commercial use from October 2022.
A Belper North Mill Trust spokesperson said: "The trust was informed in August 2021 that the leader of Amber Valley Borough Council had made an executive decision to end the annual grant from the council to the trust to operate the museum and visitor centre from April 2022.
"This will end the council’s 25-year-plus association with the trust in supporting the operation of the museum and visitor centre.
"We are currently discussing options with the landlord's agent for an alternative base on the site. This would be a significantly smaller base than we have currently - it would not be a museum - but it would enable public access to the site where an 'inside and outside' tour of the Belper Mills site could operate.
"We will work with Arts Council England on actions to maintain our current museum accreditation. This is so we can keep the option of re-opening a museum in the future."
The majority of our collections are on loan from other museums and organisations together, and the trust hopes to keep them together, mothballed in storage.
However, if this is not viable, the trust will liaise with the owners on their return and request that these are made available for public display.
Councillor Kevin Buttery, leader of the authority, said: "Amber Valley Borough Council has no responsibility for museums but has spent in the region of £1million over the years supporting the North Mill Museum Trust. Each paid visitor was being subsidised to the cost of £20 per visit.
“The Trust were informed in December 2017, that the council would be ceasing funding support as from April 2020. Early notice being given to allow the Trust time to adjust its business plan accordingly.
“The reduction of funding has been part of the council’s overall Budget Reduction Plan for a number of years, as it is required to address its £3.4million annual deficit.
“As a council the priority is to protect and deliver services you have a responsibility for, which unfortunately means you have to make difficult decisions to control overspending.
“We believe The Museum is currently operating on a rolling one-year lease with the private owners of the Mill and has over £400k in its reserves. It’s future therefore lies within its own business plan".
Ben Bellamy, of the council’s Labour group, said: "This devastating blow will have an extremely detrimental effect on Belper's visitor offering and is an insult to local people past and present whose heritage and culture was celebrated in the museum."
Green Party Councillor Dave Wells also expressed his disappointment, adding: “The museum is a great asset to Belper and to Amber Valley as a whole and it is vital that it continues.”