The warning from the body, which depends on Scottish Government money, comes after it was forced to close four lifting bridges on the Forth & Clyde Canal over safety fears.
Scottish Canals interim chief executive Catherine Topley said: “Without additional investment, we will continue to see asset decline and asset failures – some of which may be substantial.
“We simply do not have the resources to do all that we would like to do, and this means we will have to make some hard decisions.”
A new asset management strategy published by the organisation stated that without more money, there would be a “restricted operation” on the Union canal and most of the Forth & Clyde canal.
Scottish Canals received £11.6 million for 2018/19 from the Scottish Government. But it said it has needed an extra £6m-£9m a year for several years to help cope with a £70m repair backlog.
The strategy said if funding fell to £10m, parts of both canals, along with the Crinan Canal, would be downgraded to “conserve” status.
That would involve “minimum care and maintenance to keep the canal safe”.
If only £7m was available, parts of the two Central Belt canals would be switched to “preserve” status, where “use of assets is withdrawn”.
Boat traffic on the Forth & Clyde Canal has already been restricted by bridge closures at Twechar and Bonnybridge, and two in Glasgow. Twechar has resumed limited opening.
Pat Bowie, chairman of the Keep Canals Alive group, said: “This highlights how quickly the canals could fall back into disuse.”
Scottish Conservative Central Scotland MSP Alison Harris said: “This is a completely unacceptable state of affairs.
“Scottish Canals has failed to invest in maintaining its core product: the canal itself.”
The Scottish Government’s Transport Scotland agency said: “We recognise the challenges faced by Scottish Canals and will continue to work in partnership to support the organisation in their operations and to explore potential sources of funding.”
Scottish Canals said there could be restrictions in three or four years if funding did not increase.
A spokesperson said: “If grant in aid remains static, we may see restricted operations across the canal network, including on the Lowlands.
“However, this won’t mean canal closure, as boats will continue to move about locally and the many walkers, cyclists, paddlers and commuters will still be able to enjoy all that these linear parks have to offer