The losses are to be achieved through a mixture of privatisation, redundancies and early retirement and raise fears that sensitive operational duties, such as guiding nuclear submarines back into the naval base on Gibraltar, will be undertaken by private contractors.

Members working for the Ministry of Defence have condemned the decision and the lack of consultation with unions. The cuts affect posts filled by locally employed civilians and could treble unemployment figures on the Rock.

According to a statement given to chief minister Peter Caruana QC and reiterated by commodore Allan Adair, commander British forces, the defence minister plans to:

• hand operation of the Joint Logistics Unit, which employs 296 Gibraltarians, to a private sector contractor
• privatise other Defence Estates support functions covering another 300 employees in motor transport, laundering, catering and janitorial functions
• offer early retirement, redundancy or re-training to find alternative employment outside the civil service to the remaining 400 staff.

Prospect has been in negotiation with MOD over plans to privatise some 300 support function posts with the understanding that these would be allocated to in-house bids. However this recent announcement makes it clear that this option is no longer under consideration. MOD has also refused to guarantee that jobs will not be filled by foreign labour.

Michael Tampin, Prospect branch secretary in Gibraltar, said: "This bombshell is devastating for our members and for the economy of Gibraltar, which has effectively received confirmation that MOD intends to wash its hands of the entire 1,000 strong local workforce.

"The unions have rejected the proposals outright. Adam Ingram and Geoff Hoon have always stated the special circumstances of Gibraltar would be taken into account, but rather than appreciate the loyal service Gibraltarians have given the UK over the last 300 years, they seem determined to sell them down the river by this cowardly act of betrayal."

Prospect general secretary Paul Noon said: "The union stands rock solid behind our members in Gibraltar. In 2002,.we gave our full support to the campaign against proposals to transfer sovereignty to Spain and will do so again."