The Rural Services Network outlined its concerns as the government prepares to decide how much grant funding to allocate local authorities.
It follows a provisional announcement last month which the network says would very heavily penalise rural local authorities by shifting grant from shire areas to metropolitan areas.
MPs are due to vote on the proposed funding settlement in February.
Network chief executive Graham Biggs said already cash-strapped local rural councils would face the prospect of being forced to increase council tax much more than urban councils.
Even then, they would still have to undertake swingeing service cuts, he said.
Proposed changes to the funding formula had been applied unevenly and at the last minute by the government, said Mr Biggs.
Without any forewarning, this had the effect of further penalising rural areas, he warned.
"Rural areas, which already have higher council tax levels than urban areas and a lower average local income, will be caned to allow urban areas to maintain more government grant."
Mr Biggs said council tax was already significantly higher in rural areas compared to urban because of historic underfunding of rural services by successive governments.
Yet despite this, the current government was again choosing to favour urban people at the expense of those living in rural areas.
Mr Biggs said it was unthinkable that a government which had indicated understanding of the rural situation was now planning to further widen the rural-urban funding gap.
"The move beggars belief," said Mr Biggs.
"Cuts in grant have been difficult to live with for five years but they have been similar percentage reductions across rural and urban areas," he added.
"Now out of nowhere come proposals that will decimate rural services while urban areas get a much lesser level of grant reduction."
"To compound the situation still further, government ministers assume in their figures that rural residents will have to pay even more in council tax than their urban counterparts.
"It is astounding."
Rural local authorities have called on the government to reconsider its proposals before MPs vote on the final settlement in February.
The Rural Services Network agrees with the County Councils Network which also says the proposed settlement can only produce huge cutbacks in services in rural areas.