Morecambe Bay Primary Care Trust is considering shutting the wards at Kendal's Westmoreland General Hospital.
There has been local opposition, and a public consultation exercise which ends on Friday.
But trust chief executive, Dr Leigh Griffin, says the plans will allow cash to be better used elsewhere.
The closure of Buttermere Ward, where elderly mentally ill people are given assessment and short-term care, is aimed at freeing resources to provide more services close to people's homes.
'Community setting'
For Kentmere Ward, which cares for adults of working age with acute mental illnesses, the reason is financial.
Dr Leigh Griffin, chief executive of the Morecambe Bay Primary Care Trust said: "I've made it very clear throughout consultation, that we would wish to proceed with changes for service for older people regardless of our financial position.
"However, the specific changes that would affect Kentmere Ware are much more explicitly driven by our financial position."
Jane Sharp, from the mental health charity Workbase, said clients were frightened they may lose the local facility.
"Many of them have had experience of the ward, and while it's not a home from home it is a sanctuary."
Dr Griffin added: "A primary care trust has to determine with local people which services are best provided in which setting.
"That will lead to changes in service provision that may mean that some service traditionally provided in a hospital base are provided better in community settings."
A march will take place in Kendal on Saturday in support of local health services.
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