Guildford studio Lionhead has endured a further misery following the launch of its poorly received Kinect exclusive Xbox 360 game Fable: The Journey.
Parent company Microsoft confirmed it has issued redundancies to "less than ten per cent of staff".
In a statement sent to industry publication Develop, the platform holder added:
"Following the completion of Fable: The Journey, Lionhead Studios has begun work on its next projects. As is common in the games industry, a smaller headcount is needed as projects kick-off and ramp up as full-production gets underway. At this time a small number of positions have been identified as at risk of redundancy and the affected employees were notified today.
Fable The Journey looks set to be the weakest-selling packaged Fable game in the series' history, having failed to match the commercial launch and critical success of its predecessors by some margin.
Fable 2 (2008) and Fable 3 (2010) both debuted at No.1 on the UK chart (the latter was one of the biggest Xbox 360 launch titles ever in the UK), while Fable: The Journey limped in at No.37
The reduction in Lionhead's workforce comes at the end of two difficult years for the studio, which faced a community backlash following the unveiling of Fable The Journey.
Gary Carr, the group's creative director, recently told CVG how the group was "devastated by the waves of criticism directed at Fable The Journey's use of on-rails gameplay.
Though The Journey ultimately received mixed reviews, Microsoft's marketing team appeared to have made a decision to not back the project with targeted advertising.
And within the games community there is still a lingering resistance to Kinect-based games, with criticism directed at Microsoft for its insistence on making motion controls a compulsory feature on some of the projects it delegates.
CVG games critic Ben Griffin wrote in his Fable The Journey review that the game was beautiful but frustrating, and also questioned the purpose of implementing Kinect.
The Fable series is highly respected among many thousands of games enthusiasts, and its Guildford based creators have built a strong reputation for fostering the franchise over the years.
The studio is now thought to be working on an exciting new project for next-generation systems.
Microsoft said it will attempt to assist staff affected by the layoffs in securing new positions within the company.