Around 150 jobs are to go at the Royal Ordnance factory in Birtley - half the workforce.
Officials told shocked staff the news this morning.
They said the factory, which manufactures shell casings, needed to make savings despite a full order book.
Unions believe production will now be moved abroad, possibly to South Africa. The job losses will be phased in over the next four years.
British Aerospace, which owns the munitions plant, said the factory had a full order book up until 2010.
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