90 of Midway Austin's 130 staff have been made redundant as part of a project cancellation.
The publisher confirmed the latest hit on its development resource after rumours swirled on consumer sites that an unannounced game called Criminal was ditched.
Although it has lost most of its staff, the studio will remain open and work with the Midway Central Outsourcing Group to produce two new IPs.
In a statement the firm said: "This decision will allow Midway to maximize its development resources and apply manpower and capital to projects with the highest chances of success. The workforce reduction will affect approximately 90 of the 130 people currently employed in the studio."
Matt Booty, interim CEO and president of Midway Games added: “While this was a very difficult decision, we feel it was the right thing to do for the future of Midway. We view every game as an investment that must meet certain standards for quality, scheduling, and profitability. Midway remains committed to producing the highest quality entertainment, as evidenced by our strong holiday line-up which includes TNA iMPACT!, Blitz: The League II, and Mortal Kombat vs. DC Universe starring a team of MK characters and some of the most recognizable DC Comics personalities such as Batman, The Joker, and Superman.”