The Raise the Roof Homeless project had paid for 14 twin-rooms for homeless people in Hull, East Yorkshire, on Christmas Eve and Christmas Day.
The booking at the Royal Hotel cost £1,092 was made on Dec 13 and the money was raised through online fundraising site - Gofundme.
But it has now emerged that hotel bosses had cancelled the booking on Saturday without any explanation.
Organiser Carl Simpson, 50, said he had made it clear to the hotel, which is part of the Britannia Hotels group when making the booking that the rooms would be used for the homeless.
"I received a call about the cancellation out of the blue, I asked for an explanation and they didn't have one.
"This is just discrimination really, they don't want homeless people at the hotel and that's wrong.
"There are many reasons people are homeless and they're not all on drugs.
"The member of staff who I spoke to did not seem to care at all, he was saying what are you going to do? Go to the media? - He didn't even care at all."
The homeless people were told at a soup kitchen about the hotel project and now Carl has the daunting task of telling them they're facing a major setback.
He is worried the campaign to house the homeless this Christmas, could be in jeopardy because prices would rise before receiving the booking refund.
“The closer we get to Christmas, the less time we have to get a booking sorted," he said.
"The way we have been treated by the hotel is absolutely heartbreaking.
"We are waiting for the money to be refunded but that can take days for it to be transferred back, by the time we get the money back, hotel prices would have gone up.
"I'm just hoping and praying other hotels will reach out to help us."
Read more: Travelodge launch special Christmas-themed hotel room in YorkThe hotel still has not reached out to Mr Simpson to apologise or give an explanation.
He added: “How we have been treated by the hotel is appalling, I didn't expect this to happen at all.
"People shouldn't be treated like this no matter what their background, it's just not fair.
"We've had people reaching out and donating to the project, we're just hoping to have somewhere for the rough sleepers sorted out as soon as possible."
The non-profit community organisation fundraises to help put roofs over the head of vulnerable people in the Hull community.
Raise the Roof used the city's Ibis hotel last year for its Christmas campaign, but the venue did not have enough twin rooms available this year to repeat the booking.
Carl is now concerned about the time it will take to receive the refund, and whether the number of rooms needed can still be found elsewhere at an affordable price.
He posted the news on Facebook, which has been shared by more than 1,000 people.
Britannia Hotels which has 53 hotels in the UK has declined to comment.