The Eva Burrows centre in Cambuslang, Lanarkshire, provides nursing care to 32 residents and employs 50 staff. The Salvation Army claims that it can no longer afford to pay £200 per week for each patient on top of the contributions it receives from the Scottish Executive.
The charity said it was being forced to close the home because it was no longer able to provide the level of care it wanted to.
This is the first time that the Salvation Army has been forced to close any care home in the UK.
Its only other Scottish care home is in Edinburgh, which provides residential and day care.
Eva Cobb, the director of elderly care services at the Salvation Army, praised the centre's staff and said the decision to close the home was "very sad".
She added: "This has not been an easy decision. We have kept in constant communication with our staff through this difficult time and they have, in return, demonstrated the highest levels of both professionalism and compassion."We want to thank them and will ensure that we will endeavour to support them both practically and spiritually during this consultation period."
Ms Cobb also stressed that South Lanarkshire Council was helping to rehouse residents.
She said: "The Salvation Army has good relations with South Lanarkshire Council. We will be supporting residents and relatives to find alternative accommodation."
South Lanarkshire Council has pledged to re-house all the residents as sensitively as possible, but relatives of patients are said to be extremely upset and disappointed by the move.
Arrangements are being made to re-house current patients and the residential side of the care home, which will be closed entirely by the autumn.
