A new body will be set up to coordinate health research, but doctors fear it could lead to a cut in the budget.
The two publicly-funded medical research bodies are to come under one umbrella
Chancellor Gordon Brown announced the Office for Strategic Coordination of Health Research would be created.
In his pre-Budget report, he said it would set strategy, monitor progress and decide where money is spent.
But the Chancellor said the body would get a budget of at least £1bn - £300m less than the current spending, leaving doctors concerned research may suffer.
The government-funded Medical Research Council (MRC) and NHS Research and Development programmes are responsible for over three-quarters of the non-pharmaceutical industry funded research carried out in the UK.
Between them, they fund projects looking at ways of treating and preventing disease, as well as more general research into understanding more about how the body works.
Under the new system, the two groups will still exist under the umbrella of the Office for Strategic Coordination of Health Research.
The move was recommended as part of the Cooksey Review, which was set up earlier this year to look at how medical research is carried out.
Mr Brown said it would lead to a "more strategic approach to the planning, funding and delivery of health research".
Critics have argued that an umbrella body was needed to ensure research was seen all the way through - there have been suggestions basic research was not always taken as far as it could be.
The body, which will be up and running by 2009, will also be given responsibility for keep track of where money goes - it is thought sometimes the funds were used to support NHS services.
The Treasury has promised a budget of at least £1bn, but combined the two bodies currently have £1.3bn to spend.
However, the final budget will not be decided until the spending review next year.
Professor Michael Rees, chairman of the British Medical Association's academic staff committee, said: "I have mixed feelings. Many of the measures are welcome, having a body to coordinate strategy will benefit research.
"But there is still a question mark over funding. It could mean the bodies actually see a cut in their budget and that would be a backwards step."
And shadow health secretary Andrew Lansley said the funding question remained unanswered and needed clarifying if n effective strategy was to be produced.
But the Department of Health said the fears were unfounded and the research pot would get at least £1.3bn.
Sir David Cooksey said: "My proposals seek to build on the UK's position as a world leader in science and innovation, especially in life science, to further enhance productivity and economic development."
Professor Colin Blakemore, chief executive of the MRC, added: "Supporting research with the aim of improving human health is at the heart of our mission.
"As we said in our submission to the Cooksey Review team, we fully embrace the government's vision of a more integrated health R&D system across the entire UK."