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We present a modified Lanczos algorithm to diagonalize lattice Hamiltonians with dramatically reduced memory requirements, without restricting to variational ansatzes. The lattice of size N is partitioned into two subclusters. At each iteration the Lanczos vector is projected into two sets of n(svd) smaller subcluster vectors using singular value decomposition. For low entanglement entropy S(ee), (satisfied by short-range Hamiltonians), the truncation error is expected to vanish as exp(-n(svd)(1/S(ee))). Convergence is tested for the Heisenberg model on Kagomé clusters of 24, 30, and 36 sites, with no lattice symmetries exploited, using less than 15 GB of dynamical memory. Generalization of the Lanczos-SVD algorithm to multiple partitioning is discussed, and comparisons to other techniques are given.