Sony has announced it will lay off 8% of PlayStation employees globally, amounting to approximately 900 people.
In addition to cuts in the US and Japan, the gaming giant said this would mean closing PlayStation's London Studio entirely.
In a blog post sharing an email sent to employees, boss Jim Ryan called the move "sad news" and said it was "a difficult day at our company".
"We have concluded that tough decisions have become inevitable," he said.
"The leadership team and I made the incredibly difficult decision to restructure operations, which regrettably includes a reduction in our workforce impacting very talented individuals who have contributed to our success."
The cuts come a month after rival Microsoft revealed plans to lay off 1,900 people in its gaming division, which included those at recently-acquired Activision-Blizzard.
"Sony is one of the big pillars of UK game development culture so it's massive to see the legendary Sony London studio close in particular," said Halli Bjornsson, head of UK developer Lockwood Publishing.
"It's a challenging time for our industry as it continues to go through major changes.
"However, UK games talent and heritage is world class, and if we continue to foster it, we'll rebound and be in a good place to build upon the opportunities that are on the horizon."
Karaoke and football
Sony's London Studio was founded in 2002 as a result of the merging of two other London-based studios under the PlayStation brand.
Over the past two decades, it created several series including karaoke game SingStar and 2000s football title This Is Football.
More recently, it made virtual reality (VR) games exclusive to Sony's headset, including VR Worlds and the well-received shooter Blood & Truth.
According to LinkedIn, the studio has between 51 and 200 employees, and it was working on "an unannounced online co-op combat game" set in London before the announcement.
Sony's PlayStation 5 has sold more than 50 million units worldwide, more than double Microsoft's Xbox Series X/S sales.
But another gaming rival, Nintendo, which released its Switch console three years earlier, has sold almost 140 million units worldwide.
And Sony said in its earnings report in February that it now expected to sell four million fewer consoles than expected by the end of March.
Despite PlayStation's revenue being up by 16% compared to the same period one year earlier, its operating income had fallen by a quarter.
"Sony Interactive Entertainment becomes the latest in a long list of games companies that have laid off a significant number of staff in the last 12-18 months," said Piers Harding-Rolls, gaming industry analyst at Ampere Analysis.
"The cost of developing big-budget games has reached unsustainable levels and these costs have come when the games sector is going through an adjustment post-pandemic.
"Many companies have been responding to that more commercially risky market."
Source: BBC