Labour's broadcasting spokeswoman, Clare Curran, said the future of public broadcasting was "dire".
"What will happen to those great programmes? TVNZ7 is a new digital channel. It's where the Government should be investing.
"It's cheap, quality content for New Zealanders made by New Zealanders."
But Broadcasting Minister Jonathan Coleman said the Government would still support New Zealand-made shows through the contestable NZ On Air pool.
"If you look at the way people are watching TV, they're assembling their content from everywhere ... downloading it through the internet. That's going to be the future of TV.
"Sinking money into a public broadcasting infrastructure which continues to suck up money in the long-term doesn't make sense ... It's important to fund the content, not some monolithic public broadcaster."
About 20 to 30 staff work directly or indirectly on TVNZ7, but it is unknown how many jobs will be lost, as staff may be redeployed into other areas of TVNZ.
The pot of NZ On Air funding for television shows is not expected to change. Last year it was $81 million.
Russell Brown, who hosts Media7, said he was hopeful the show would survive, but capping NZ On Air funds meant a show could get the green light only at the expense of others.
"You've now got a crop of shows that are really starting to hit their straps. They've matured.
"It's an unfortunate time to be killing off the channel that developed them."
Lawyer Greg King, who fronts The Court Report, said the decision was "really disappointing".
Dr Coleman said the Government had no new money, and a channel that pulled in about 207,000 viewers a week - compared to the 600,000 people who tune in nightly to One News - was not a high priority.
"I think the public get that there are a whole lot of 'nice to haves' which the country can no longer afford."
CORRECTION: This story quoted viewer figures for TVNZ7 that were based on an incorrect figure (207,000 a week) provided last year by the office of former Broadcasting Minister Jonathan Coleman. According to Nielsen, TVNZ7 attracted an average monthly cumulative audience of 1.1 million last year. In December, it achieved a record 1.47 million viewers.