Train maker Bombardier, which recently missed out on the £1.4bn Thameslink contract, has said it plans to cut more than 1,400 jobs at its Derby plant.
Last month, the company lost out to German group Siemens as the preferred bidder to build 1,200 carriages for the route between Bedford and Brighton.
Unions and opposition politicians have called for the government to review its decision to choose Siemens.
But Transport Secretary Philip Hammond said that this was not possible.
The UK subsidiary of Canada's Bombardier said that there was not enough future work to keep its Derby facility, which employs 3,000 people, operating at current levels.
It plans to cut 446 permanent jobs and 983 temporary contract staff, and has launched a 90-day consultation process.
The company said that by the end of September, it would have completed work on two major contracts and would only have work remaining on one more.
"The culmination and successful delivery of these projects and the loss of the Thameslink contract, which would have secured workload at this site, means that it is inevitable that we must adjust capacity in line with economic reality," said Francis Paonessa, president of the passengers division for Bombardier in the UK.
"We regret this outcome but without new orders we cannot maintain the current level of employment and activity at Derby."
While Bombardier is laying off staff, Siemens has said that it will create 2,000 jobs across the UK as a result of winning the Thameslink contract.
However, Siemens will build the trains in Germany and only 300 of the UK jobs it creates will be directly employed manufacturing posts, at a factory in Hebburn, South Tyneside.
Siemens already employs about 16,000 people in the UK.
Nightshift workers leaving Derby's Litchurch Lane plant on Tuesday morning were clearly distraught and left wondering about the future of the company, said Anthony Bartram, the BBC's correspondent in Derby.
Securing the Thameslink contract was regarded as crucial for the plant, the UK's last rolling stock manufacturer.
However, in a letter written to the government before it chose its preferred bidder, Bombardier had said that even if it had won the Thameslink work, it would still have had to lay off 1,200 workers in Derby as it adjusted to finishing other major contracts.
The government has said that the Siemens bid represents the best value for money, and that it was following EU procurement rules, which do not allow where companies are based to be taken into account.
But Kevin Owen, a welder at Bombardier's Derby plant, said the government's decision showed "short-sightedness".
"They've just gone for the bottom line rather than the bigger picture - what this could mean for the whole country and industry," he said.
Philip Hammond told the BBC that he and Business Secretary Vince Cable had written to the prime minister suggesting that the UK needed to look at the way in which EU procurement rules were operated.
"The way some of our continental partners approach these things is to look more strategically at the domestic supply chain," he said.
"It is clear that it is possible to structure the contracts such that, even within the constraints of the European procurement directive... there are much greater chances of the domestic supply chain succeeding. I think we need to look at how we manage these things in the UK in the future."
But the Unite union said that the issue was not with the rules themselves, but the way in which they were being interpreted.
"I don't know of any procurement that's been in France or Germany that has gone to any other company other than the indigenous rail manufacturers in their countries," said Mark Young, Unite's co-ordinating officer.
"So if they're playing by the same rules that we are, or at least we're professing to play by the same rules, then something else has gone wrong and it's no good the government saying they can't do anything about it. Yes they can and yes they must."
He added that he believed the government still had the opportunity to review its decision, and that Unite would campaign "night and day" to protect jobs at Derby.
Shadow business secretary John Denham and shadow transport secretary Maria Eagle have written to Prime Minister David Cameron urging him to review the decision.
But Mr Hammond said it was not possible to review the bidding process. His only option would be to cancel the whole Thameslink project, which was already 16 years behind schedule.
He added that the procurement process had been set up by the previous Labour government and he was bound by the criteria set out at the beginning of that process.
But Ms Eagle told the BBC: "I find it amazing that the Secretary of State is denying that he has the power to make any difference here. He clearly does.
"In fact, the last train contract that was let for intercity trains was reviewed twice by the Labour government towards the end of its time in office and by the new Conservative government - they made significant changes to the contract as a result of their review."