Culture secretary Matt Hancock says horse racing should not be funded by “misery” as he announced new rules on fixed-odds betting terminals (FOBTs).
The maximum stake on the machines, dubbed the “crack cocaine of gambling” as people can bet up to £100 every 20 seconds, will be reduced to £2 under the proposals.
Bookmakers say the move could lead to hundreds of shops closing.
Research has suggested it could cost British racing up to £60m annually.
Bookmakers support horse racing through an industry levy, and by paying for media rights and sponsoring races.
The British Horseracing Authority (BHA) says Hancock has asked officials to investigate the potential of expanding the levy to include global racing bets placed in Britain.
Hancock, the Conservative MP for West Suffolk, told BBC Radio Four’s Today programme: “I represent Newmarket, which is the home of horse racing. I love horse racing and there is an interaction between the sport and the gambling industry.
“We are working with the British Horseracing Authority on a package of measures to mitigate the impact on horse racing.
“But I would say this to people in the horse racing industry, and who love that sport: Horse racing should not be financed on the back of this misery.”
He added: “Horse racing is a wonderful sport that can, and will, pay for itself and be financially successful without having to ruin the lives of people using these machines.
“Horse racing is glorious. It doesn’t have to be based on these machines, which are designed by their algorithms, to ensure people cannot win.”
The government’s consultation into electronic casino games, such as roulette, found consistently high rates of problem gamblers among players of FOBTs.
Hancock said he had spoken to people in his constituency who had lost thousands of pounds and pleaded for changes.
BHA chief executive said British racing had “a strong social conscience” and supported the government measures.
“It is too early to say what the financial impact for racing will be,” he said.
“Our estimates before today’s decision ranged from £40 to £60 million per year, once the impact of the changes has filtered through into racing.
“These estimates did not take into account the Secretary of State’s suggestion that the levy could be extended to bets on global racing, which could partially offset any reduction.
“We are also encouraged by the Secretary of State’s reference to a period of transition which will allow time for racing and betting to adjust.”
Fred Done, the chairman of bookmakers Betfred, accused the government of playing politics with people’s jobs.
“This decision will result in unintended consequences including direct and indirect job losses, empty shops on the high street, and a massive funding hit for the horse racing industry,” he said.