Eight Britons were injured in the Mumbai attacks, including Will Pike, 29, who was left paralysed and confined to a wheelchair after being caught up in the bombings and subsequent siege of the Taj hotel.
The previous Labour government had amended the law that enabled British victims of terrorism overseas to claim compensation.
Calling the reported shift in policy 'an insult', Pike told The Observer: "I will be in a wheelchair for the rest of my life, so this is isn't a matter of choice for me; I was the victim of an attack on my country.
The terrorists hit that hotel because it was full of western tourists. I was injured because I had a British passport, which turned out to be bloody worthless as soon as I got home."
Campaigners called the reported shelving of plans to help Pike and 300 or so other British victims of attacks abroad over the past few years as 'outrageous'.
Changes to rules were made under the Labour government, with support from various parties.
A Ministry of Justice spokesman said: "Following the Ministry of Justice's Spending Review settlement, ministers are reviewing all victims' services and considering where best to allocate funds.
No final decisions have been mad. This government believes that support should be offered to the most serious, most vulnerable and most persistently targeted victims of crime – ensuring that those who actually need support, receive it."
Announcing the amendment to the law before the general election, the then justice secretary Jack Straw said: "Terrorism is intended as a political statement and an attack on society as a whole. Therefore it is right that, as a tangible expression of sympathy, society should compensate the victims of terrorist attacks abroad."
Lord Brennan, a Labour peer who has campaigned extensively on this issue, said not paying Pike and others compensation "shamed" Britain.
He said: "If those injured here are paid compensation, then it should be the case that those injured abroad in the past are not ignored.
In the midst of this grave recession, with the campaign against terrorism continuing, to forget these people is simply unforgiveable treatment. This could have been any one of us on a foreign journey."