BUS firms are threatening to axe routes and increase fares following a cut in funding for the Scottish Government's free travel scheme.

The rate at which operators are reimbursed for carrying disabled passengers and those over 60 is to be cut by 13% over two years – equivalent to around £24 million a year.

However, ministers have moved to avoid an immediate funding crisis by announcing a £10m emergency investment in the flagship scheme this year.

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The settlement marks the second time funding for bus operators has been cut since the scheme was set up in 2006.

Stagecoach, one of the UK's biggest transport groups, said the deal represented a significant cut.

A spokesman said: "This comes at the same time as fuel, wages and other costs continue to rise.

"All of these factors have a direct impact on the cost of bus travel and the economics of bus networks. We are looking at the practical implications of this for our bus networks in Scotland."

A number of bus operators went further in private.

One source said: "We'll have to look again at what routes we can afford to operate and what the impact on fares will be. There are difficult decisions on the way."

Transport Scotland, which administers the National Concessionary Travel Scheme, faced a funding shortfall of nearly £13m in the 2012/13 financial year as demand from passengers claiming free trips exceeded the £187m funding available, according to industry sources.

The crisis had prompted warnings that a number of bus firms could go under unless more money was found.

Bus firms were paid 73.6% of the cost of an adult single fare under a system designed to ensure they were no better or worse off for carrying disabled and elderly passengers for free.

This was cut to 67% in 2010 and, as part of the new deal, will be cut to 58.1% by 2014/15.

Patrick Harvie, Green Party co-convener, said ministers had applied a "sticking plaster approach" to bus funding.

He said: "This last-minute fumbling for spare change to tide over a vital public service shows buses remain a low priority for the Scottish Government."

Richard Baker, Labour's Scottish transport spokesman, added: "The SNP's latest round of cuts to concessionary travel means that hard-working Scots who rely on buses will face increasing fares and poorer services over the next two years.

"There is no point celebrating that pensioners have free bus passes when increasingly they will struggle to fund a bus to use them on."

However, Transport Minister Keith Brown said: "Today's agreement secures concessionary travel for the future and ensures the bus industry not only receives all of this year's budget in full but a further £10m to support investment in the industry during tough financial times.

"We are continuing to provide £250m annually to the industry, investing not just in concessionary travel but support for services and new green buses."

Paul White, spokesman for the Confederation of Public Transport, which represents bus and coach firms, welcomed the £10m "transitional aid" to help bus companies adjust to the cut.

He added: "It should be acknowledged this cut in reimbursement, taken alongside other financial pressures, will be difficult for the industry to absorb.

"Hopefully this will at least allow a degree of certainty for all parties and enable Scotland's bus operators to concentrate on the business of carrying passengers and growing services."