The Big Lottery Fund is to review its decision to award £500,000 to a controversial transgender children's charity after complaints.
Mermaids UK has courted controversy over its campaigning to allow under-16s to receive life-changing sex change medical treatment and intervention.
The Sunday Times said the grant to Mermaids would be used create a network of 45 groups nationwide.
But the decision is now being reviewed after the Big Lottery Fund received messages of concern.
Tory MP for Monmouth David Davies told The Sunday Times: 'I am absolutely horrified that the Big Lottery Fund are handing out a fortune to this aggressive organisation. What they are doing is utterly wrong.'
In further comments to TalkRADIO, he said concerns around the rise of transgenderism was not limited to social conservatives.
'I welcome [the review] because I'm very concerned about the way Mermaids are going into schools and campaigning on transgender issues. They seem to be encouraging children to question their own gender when there's no need to,' he said.
'Their guidance online makes it very clear that if a boy transitions into a girl, it's up to everyone else at the school to feel comfortable with that, even if that boy is in the girl's changing rooms. As a parent, I don't think that's acceptable.'
He added that gender dysphoric children should be supported but questioned Mermaids' approach.
'Obviously there are some children confused about their gender who deserve help and support, and no way do I have a criticism of that, but these organisations seem to be encouraging people to question their gender and making problems where there aren't any,' he said.
Father Ted creator Graham Linehan, who rallied Mumsnet users to complain, said the review was 'good news for people who don't believe gender non-conforming children should be told they're in the 'wrong' body, and may need a lifetime of drugs and/or surgery to 'fix' that'.
In a statement, Mermaids said it 'welcomes all levels of scrutiny'.
'Whilst we are disappointed that this is necessary, Mermaids understands that the volume of correspondence, both positive and negative, received by Big Lottery has necessitated a review of the grant that we were notified of last week,' it said.
The Big Lottery Fund said: 'We have received a range of correspondence in relation to a proposed grant to Mermaids, expressing both concern and support regarding this organisation.
'We're grateful to those who have taken the time to write to us, and in light of the nature and volume of the communication we have received, we have decided to undertake a review of this grant.'
