The princesses receive protection from Met officers
About £4m which would have been used for policing went into a VIP protection budget to meet a funding shortfall, the Metropolitan Police (Met) has told MPs.
Deputy Commissioner Tim Godwin told the Home Affairs Committee that the sum could have been used to provide more "officers to police the streets".
Commissioner Sir Paul Stephenson has "almost constantly" raised the issue with the government, the MPs heard.
The Met's governing body said "national functions" must be "funded nationally".
Mr Godwin told the committee that extra money had been used to pay for highly-trained protection officers, known as dedicated security posts.
He said: "The amount of money at the moment in terms of dedicated security posts is a small sum, but that could be used to provide police officers to police the streets.
"It is sometimes hard to identify what is the national bit and what is the London bit.
"One of the biggest challenges for the Met is to make the case of what the thing is and how much it costs, because it can vary," he added.
Kit Malthouse, Chairman of the Metropolitan Police Authority, told MPs: "It is a good point and one the commissioner discusses with the Home Office almost constantly.
"In the Metropolitan Police budget we have had a transfer of £4m of extra money into protection and we have done that to maintain the service of what we need to do.
"Our view is this money should come from central Government, but they have got us because to handle the risk we need to manage the service."
He added: "I think national functions should be funded nationally and the rest should be left to mainstream delivery.
"It is hard for the public to appreciate this money is well spent on their behalf."