Dozens of rural post offices in the Westcountry could be replaced with limited counter services in garages and shops under Government plans to downgrade a fifth of the branch network in a move which has dismayed campaigners.

Under changes that will be rolled out from next June, 2,000 post offices – including many in Devon and Cornwall – will be converted into new Post Office Locals, which offer more restricted services from within other commercial premises.

The Government yesterday insisted the new model was not an attempt to squeeze rural services but to make them "more commercially viable". But consumer watchdogs and rural campaigners in the Westcountry said the plans will hit isolated rural communities the hardest.

Bob Drabwell, chairman of Cornwall Senior Citizens' Forum, said: "Post office services are essential and people who are elderly or disabled can't just jump on a bus and head into the nearest town to use a bigger post office. The little village post offices are vital."

Customers will not be able to apply for a driving licence, send bulky mail overseas, pay car tax or make cash withdrawals using passbooks – but they may benefit from longer opening hours if the new service is on a commercial premises like a filling station.

Andrew George, the Liberal Democrat MP for St Ives, said rural post offices should be allowed to offer more – not less – services to keep them at the heart of community life.

He said: "It's going in the opposite direction to the one the Government promised we would go in."

The watchdog Consumer Focus warned that shop and garage owners often treated PO Locals as a "secondary offer" and said there were examples of staff being unable to offer more complex transactions because of a lack of training. It also discovered that some PO Locals, which are currently being trialled, having to "ration" money and being unable to pay pensions and benefits because they can only keep limited amounts of cash on the premises.

Andy Burrowes, a postal expert at Consumer Focus, said: "We found examples of that and clearly we need to make sure that the model is robust and those issues are addressed before the wider roll-out can begin."

A dedicated counter for postal transactions will be a thing of the past, with customers expected to queue up behind other people buying groceries or paying for petrol in order to receive their pensions or benefits.

Alice Barnard, chief executive of the Countryside Alliance, said: "This is essentially a downgrading of the postal services offered to local communities.

"Isolated rural communities stand to suffer the most from the closures and loss of postal services. We are concerned that there has been insufficient public scrutiny of the new model and the effect it will have on people's everyday lives."

The Department for Business, Innovation and Skills, which is expected to take over the running of the Post Office network from Royal Mail in April next year, yesterday defended the plans.

A BIS spokesman said: "This is about making sure that people have access to the services they want and need from their post office, at times they want them, and making running a post office more profitable for hard-working sub-postmasters."

He said the Post Office network will be maintained at its current size and coverage of 11,500 outlets nationwide and the changes were "not targeted" at rural services.

Ian Park, the National Federation of Sub-Postmasters' executive officer for the South West, and a sub-postmaster at Marldon Hill post office in Paignton, South Devon, said the changes were part of a strategy to "avoid any further post office closures".

He said: "The new Post Office Local model will allow customers to benefit from greater choice and convenience through enhanced opening hours; while retailers will benefit from combining the strength of their shop and their post office, sharing costs between the two and building a more sustainable business as a result."

Kevin Harris, who runs a post office in the West Cornwall village of St Erth, which was saved from closure during cuts to services by the previous government, said postal services were vital in isolated communities. He said: "This is quite a busy post office for a small village and people rely on us for a service. We have got a shop as well and the post office wages come in useful, so I don't know how it would work if things changed."