Dave Prentis's announcement was met with loud cheers from members
The Labour Party's biggest financial backer trade union Unison has said it will no longer give financial support to MPs that do not support its values.
General Secretary Dave Prentis told union members it would not give any more "blank cheques" to the party.
He said Labour MPs and candidates at the next election who backed further privatisation of public services would have funding withdrawn.
He said his union was "tired of feeding the hand that bites it".
Unison is understood to have suspended £100,000 in funding to individual Labour MPs and is threatening to suspend £1m it was planning to plough into the party at the next general election.
The union, which represents millions of workers across the public sector, gives money to 64 individual MPs as well as supporting the party nationally.
Mr Prentis said the results of recent council and European elections showed a "huge gap" had opened up between Labour and the working public, who he said were disgusted by the expenses scandal and threats to public sector jobs from government reforms.
Labour MPs who would not "stand up for the union's values" would no longer be bankrolled, he said.
The leadership's policies towards the public services were an "anathema" to workers and their values of social justice, public service and accountability.
The government had undermined the public finances by its multi-billion pound bank bailout, he said, and done nothing for Labour's core supporters.
"The very same government says the solution is to hand larger and larger chunks of our public services over to private companies that will always put profit before public interest. Absolute lunacy."
Future plans to "market test" NHS services were something even the Thatcher government had shied away from, Mr Prentis added.
Gordon Brown earlier tried to rally members of the GMB behind the party, saying the Labour movement had to "work together" to win the next election.
The prime minister has tried to make Labour's record on public service investment a key plank of his fight back after his recent leadership troubles.
He told the GMB union that Labour faced an unprecedented fight to protect public services from a Conservative government committed to cutting spending.
However, MPs on the left of the Labour party, led by John McDonnell, have threatened to put forward their own manifestos at the next election if the leadership refuses to adopt its policies.
The Campaign Group of MPs wants union rights increased and an end to privatisation of the public services.
Mr McDonnell said: "I welcome Dave Prentis's speech today at Unison conference. It is an indication of the revulsion within rank-and-file trade unionists at the government policies of privatisation.
"We will be seeking a meeting with Mr Prentis about his support for the 'change campaign' within Labour and how we can mobilise for the policies we all want from a Labour government."
The government's plan to part-privatise Royal Mail, now under serious doubt, is likely to become a litmus test of union support for Mr Brown's leadership.