Sony has pulled Cyberpunk 2077, one of the year's most-anticipated games, from its store and offered refunds to all players.
The unprecedented move follows complaints that the game has been riddled with bugs and glitches, and is prone to crashes.
Microsoft later said it would also refund any dissatisfied Xbox players.
Developer CD Projekt Red has promised to issue patches to improve the game for those who do not return it.
It’s unclear when Sony Interactive Entertainment (SIE) plans to return the game to the PlayStation Store.
“SIE strives to ensure a high level of customer satisfaction, therefore we will begin to offer a full refund for all gamers who have purchased Cyberpunk 2077 via PlayStation Store,” the company said.
A Microsoft spokesperson said Xbox players would also get refunds - but is not pulling the game from sale.
"We know the developers at CD Projekt Red have worked hard to ship Cyberpunk in extremely challenging circumstances," a spokesperson said.
"However, we also realise that some players have been unhappy with the current experience on older consoles."
To rectify the situation it said it was issuing refunds to customers who have already requested one and would be expanding refunds to "anyone who purchased Cyberpunk 2077 digitally from the Microsoft Store, until further notice".
To request an Xbox refund, users needed to follow the steps listed on the Xbox refund page .
Some Sony users reported being unable to request the refund, even after the announcement - something Sony said it was working "to get up and running as soon as possible".
It can still be bought on PCs - and gamers who do not want be reimbursed for their copies can still play the game and receive updates.
In Cyberpunk 2077, players live in a criminal world where they can pay to upgrade their bodies with technology.
The action role-playing game was originally "announced" in 2012, but then re-announced in 2018 and then showcased with huge fanfare - and an appearance by Keanu Reeves - in June 2019.
The game reviewed well, with critics praising its gameplay and visuals - despite many visual glitches and bugs, which are common in large open-world games and often patched after launch day.
But on release it became clear that versions of the game for older consoles like the PS4 and Xbox One ran poorly, with hitching, visual quality drops and slowdown that many players said made the game unplayable.
Those with the newest versions of consoles, or a high-end gaming PC, have not experienced the same level of issues.
CD Projekt Red, which traditionally has focused on the PC market, had already acknowledged it "should have paid more attention to making it play better" on those consoles.
The company says it will release patches to solve the problems in January and February.
“They won’t make the game on last-gen look like it’s running on a high-spec PC or next-gen console, but it will be closer to that experience than it is now,” the company said in a statement on its website.
It also encouraged users to use refund systems on the Sony and Xbox stores if they were unhappy.
However, PlayStation's policy is to usually not offer refunds if the game has been downloaded and played, "unless the content is faulty".
That led to much confusion among players seeking refunds as directed by CD Projekt Red, who were refused such refunds by Sony.
It is not clear if the removal of the game from the PlayStation store means that Sony has decided the game is "faulty" under its rules.
Hours after PlayStation's announcement that it was pulling Cyberpunk 2077 from sale, CD Projekt Red said the game was "temporarily" suspended "following our discussion with PlayStation".
It said the game would "return as soon as possible" - but gave no date.
Xbox users also reported trouble with refunds, with many saying refund requests have been refused, despite an apparently flexible refund policy.
Microsoft says that while it considers all sales final, "we understand there may be extenuating circumstances" and it considers several factors for refund requests.
But the firm announced it was expanding its refund to cover all digital sales of Cyberpunk 2077 about half a day after Sony.
CD Projekt Red also came under fire from fans when it announced staff would have to work overtime to finish the game - a process known in the industry as "crunch".
It had previously promised not to impose that kind of demand on its staff.