Moray Council's move to cut the arts grant will save £62,000 for the rest of this year, and £94,000 in 2013/14, but brought a backlash from writers, artists, musicians and the local MSP.
The Scottish Government urged the local authority, which is run by a Conservative and Independent coalition and is trying to save £30 million a year, to reassess the decision.
A spokesman said: "The Scottish Government views and values culture and the arts as of key importance to Scotland.
"Councils are autonomous bodies, responsible for managing their own day-to-day business and answerable to their electorates. We would, however, hope they would revisit and reassess this disappointing decision."
Council leader Allan Wright said the arts cut reflected "what people said they were prepared to live without".
It affects the promotional arts budget, grants and support for the North East Arts Touring as well as the post of an arts development officer.
Robert Livingston, director of Hi-Arts, which promotes culture in the Highlands and Islands, said: "Moray was one of the last councils in Scotland to establish a dedicated arts post.
"Yet in the past decade that officer, Nick Fearne, and the arts team whose posts have already been cut, have had a transformative impact on the county, from sell-out projects with the Royal Shakespeare Company and the National Theatre of Scotland, through employing artists to transform the dining halls of almost very primary school in Moray, to remarkable work with young people at risk of offending. There could hardly be a better or more tangible return on such a modest investment."
He added: "I think, in a way, the real damage was done two years ago when the rest of the arts team was disbanded, leaving just one arts officer with no budget."
Playwright Jo Clifford said: "This is tragically foolish, self-destructive and short sighted. Moray Council will lose far more than they save."
Local MSP Richard Lochhead, who is also the Rural Affairs Secretary, tweeted: "The philistine Tory-led coalition must reverse their decision."
The council said the decision followed one of the biggest consultations ever undertaken by a council prior to yesterday's vote on its budget.
Councillor Wright said: "At every meeting, survey and response we had as part of this extensive consultation, arts, I'm afraid, came bottom of the list for Moray residents.
"We have to find unprecedented savings, and what we have produced in this budget reflects what people have told us; they would prefer to maintain funding for the elderly, education and other key services at the expense of arts. I understand this is not a popular move for some in the sector."