Wrekin Housing Group has decided to close The Furniture Scheme, in Ludlow, and move to an online service only, putting up to seven jobs at risk.
Councillors have vowed to start a campaign to save the service, which they say is vital to people during a cost of living crisis.
Councillor Heather Kidd, who represents nearby Chirbury and Worthen on Shropshire Council, says she plans to get the issue on the agenda of the next available cabinet meeting.
"It is a very serious issue in south Shropshire," she said. "We have simply got to find a way forward because of the cost of living crisis. People are going to need access to cheaper furniture.
"I am seriously worried about it because other housing associations have had their rents capped by the Government so they won't want to know about this kind of service. We have to find a way forward through Shropshire Council or whatever."
Councillor Kidd said the service truly proved its value during flooding in Ludlow, when new furniture was given to homes in the area.
Ludlow councillor Andy Boddington said: "Our town would not be the same without the furniture scheme.
"Established more than 20 years ago, it was pioneering. Unwanted furniture would be collected and refurbished. Some furniture would be sold, raising funds that were ploughed back into the scheme.
"Other items were given, for a small fee, to residents in need.
"At its height, the furniture scheme had a shop, the Renaissance Centre on Tower Street, as well as its long established warehouse and shop the bottom of Weeping Cross.
"There is a plan for an outreach scheme from Shrewsbury and Oswestry but we have yet to see details."
A spokesman for Wrekin Housing Group said: “Following a review, we have taken the decision to close The Furniture Scheme store in Ludlow, and instead move to supporting Ludlow communities with an online presence."
The staff employed by Wrekin at the scheme will "where possible" be offered the chance to redeploy to other sites, the social housing company said.
Wrekin also runs two similar furniture schemes in the county under the Reviive brand.
The spokesman added that Wrekin will "continue to support our Wrekin Reviive stores in Shrewsbury and Oswestry".
Giving more details on the decision, the spokesman added: "“Unfortunately, despite our best efforts, the Furniture Scheme in Ludlow has not been able to break even financially in this challenging retail climate.
"The Furniture Scheme will still be available to residents of Ludlow and the surrounding area via our expanded online delivery service.
“We are sincerely grateful to the employees and volunteers who have provided a stellar service to the community.”
Set up in 1994, the organisation reuses and recycles items donated and passes them on to some of the most excluded members of the communities of south Shropshire, helping people to begin to build an independent life and home without increasing their debt.