Car production is to end at Jaguar's historic Browns Lane factory in Coventry but some work will continue there, parent firm Ford has confirmed.
Ford has invested £635m in Jaguar in recent years
The assembly of Jaguar models will transfer to the nearby Castle Bromwich plant, with 400 voluntary redundancies.
Up to 425 of Browns Lane's workers will move to Castle Bromwich while a further 310 will remain in Coventry to make wood finishes for Jaguar models.
Ford also said Jaguar would pull out of Formula One at the end of the season.
In addition to the 400 voluntary redundancies, 750 mostly white-collar jobs will go across the Jaguar Group as back office work is combined with Land Rover.
Ford said 500 of these jobs would go through voluntary redundancies while 250 agency positions would also be cut.
Union leaders condemned Friday's moves, saying that the changes could "kill off" the marque.
Jaguar had gone back on agreements to keep production going in Coventry, they claimed.
Jaguar said it had been forced to take decisive action because the company was making serious losses.
"Our business as it currently stands is unsustainable," said Joe Greenwell, Jaguar chairman and chief executive.
"It is not a decision we have taken lightly. We do have a strong attachment to Browns Lane but it does not have the infrastructural advantages of other plants."
Yet to win
The company said there would be no compulsory redundancies and that voluntary redundancy packages would be more generous than any the company had offered previously.
The company also said it was creating 300 new jobs at its Aston Martin factory at Gaydon in Warwickshire, while confirming it was going ahead with the production of a new sports car to go on sale in 2006.
However, Jaguar said it would sell its Formula One team at the end of the season, after deciding there was no longer a "compelling business case" for remaining in the sport.
Ford has struggled since it entered F1 in 2000 and the Jaguar team has yet to win a race.
Tony Woodley, general secretary of the T&G union, said he feared that the changes could spell the end of Jaguar's Product Development Centre at Whitley as well as Browns Lane.
400 voluntary redundancies in manufacturing at Browns Lane
750 white collar jobs lost in Coventry and across the company
310 staff to remain at Browns Lane
425 staff to transfer to Castle Bromwich
300 jobs to be created at Aston Martin factory in Gaydon
"This is a bleak day the for British car industry. This is not an issue of scaling back production but the start of closing down two factories."
"Ford's decision may kill off Jaguar," said Derek Simpson, general secretary of the Amicus trade union.
"Our members will fight like tigers to keep the lion's share of quality car manufacturing in Britain."
"This is a huge emotional blow to Coventry," said Nick Matthews of the Warwick Manufacturing Group at Warwick University.
"Jaguar is in Coventry's DNA and vice versa. It is like losing a friend or a member of family."
Malcolm Harbour, MEP for the West Midlands and a former director of Rover, said that while the changes were a blow to Coventry, the situation was not completely gloomy.
"Clearly any car company has to match capacity with demand but new investment in production is still flowing," he said.
"The heart of any product is design and development and that is very much going to remain in Coventry."
Jaguar has seen demand for its models drop in the US, its key market, and has been looking at how to reduce costs.
Jaguar has been responsible for huge losses and probably cost Ford more than £100m ($178m) in the second quarter.
Ford recently considered closing its Land Rover plant in Solihull only to reach agreement with unions on a plan to make it more competitive and safeguard 8,000 jobs.
Jaguar cars are made at three sites in the UK and all have been producing at less than capacity. The other two plants are at Castle Bromwich in the West Midlands and Halewood on Merseyside.
Some industry analysts have argued they should be made at one central plant instead, possibly outside the UK.
The dollar's weakness against sterling has been making Jaguar cars uncompetitive in the US, which accounts for 50% of Jaguar's sales.
Rivals such as Mercedes Benz, BMW and Japanese luxury car makers assemble cars in the US, avoiding the risk of exchange rate movements working against them in this way.
Ford reported a $362m second-quarter pre-tax loss for its Premier group, which includes Jaguar as well as Land Rover, Aston Martin and Volvo.