Decisions in courts in England and Wales are being made on the basis of cost not justice, say magistrates.
Magistrates maintain public confidence in justice is being eroded
In a letter to the prime minister, the Magistrates' Association criticised the use of fines for public order offences.
The association said financial cuts were causing low staff morale and "severely undermining" public confidence in the system.
Ministers said spending had risen over the past 10 years, and urged staff to work together more effectively.
The magistrates' letter was arguing against a financial settlement announced by the constitutional affairs department.
The association said the deal would amount to a decrease of 3.5% each year in real terms.
"The extent of the financial cuts that have been made in recent years makes it impossible for the system to perform adequately," the letter stated.
The association said the courts needed better IT systems, more clerks, more legal advisers and more investment in the court buildings - some of which are rat-infested.
The letter also argued that increased use of measures like fixed penalty notices meant sentences were being decided on "financial grounds rather than judicial grounds".
Association chairman, Cindy Barnett, told BBC News there were an "awful lot of examples" where lack of funding was putting "enormous strain" on the system.
"If there is a question of a lack of legal advisers, for instance, it makes it more difficult for the right number of courts to run," she said.
"The same is true when there is under-resourcing of the CPS and over-strain on the police."
She said it was "very frustrating" when magistrates were prevented from dealing with cases because of staff shortages or missing papers.
But Lord Falconer, the lord chancellor, said the system was not suffering because of a lack of funds.
"We spend more on criminal justice than any other country in Europe and the United States of America."
He said expenditure on criminal justice had risen from 2% of gross domestic product to 2.5% in the past 10 years.
"And that's not just increasing the number of police, it's also spending more money on the courts, more money on the prosecutors."
Lord Falconer added: "The issue is not a lack of resources, it is making sure all of the people in the system work effectively together."