About 1,000 jobs are to be cut from the Courts Service and 300 from the Department for Constitutional Affairs.
The DCA has failed to implement efficiency improvements
The DCA says "natural wastage" will account for most of its cuts and around half of those at the Courts Service, which it is also responsible for.
The Public and Commercial Services Union says the scale of the cuts means strike action cannot be ruled out.
Budget cuts of up to 8% will make the justice system "grind to a halt" in parts of England and Wales, it says.
The DCA as a whole employs some 25,000 people. Its budget in 2004-05 was £3.5bn, including £2bn spent on Legal Aid and £1bn on operating the courts.
A letter warning of the expected cuts has been sent to DCA and Courts Service staff.
In it, permanent secretary Alex Allan says: "We expect to achieve most of this through normal turnover and tight controls on recruitment, coupled with some redeployment and release of agency staff.
"But in some parts of the business we may need to invite volunteers for early departure schemes."
Such schemes were likely to be largely confined to "specialist and middle to senior management grades", he said.
Among the 1,000 job losses in the Courts Service, "perhaps more than half" could be covered by normal turnover and workforce controls, Mr Allan said.
The letter says the cuts come after the department failed to implement substantial efficiency improvements required under its current financial settlement with the Treasury.
It had been expected that these would come from extensive reductions in the amount spent on Legal Aid, which have so far failed to materialise.
Mr Allen warns that all parts of the department will consequently have to manage on a "very tight funding allocation" for the rest of the year.
He adds: "We have to ensure we all live within our means if we are to make a credible case for the investment we need to develop and improve our service to the public in future."
'Permanent financial challenge'
In a statement, the Lord Chancellor, Lord Falconer of Thoroton, said keeping control of the department's finances was "a permanent challenge".
He said: "We need to sustain and intensify that scrutiny and improve still further our financial management.
"The department's finances need to be refocused to provide the best possible service to our customers as well as value for money for the taxpayer."
The PCS union warned the "inevitable consequences" of slashing jobs would include fewer court sittings and a growing backlog of cases.
General secretary Mark Serwotka said a ballot on industrial action "in defence of the justice system" could not be ruled out.
He added: "For a government that puts so much store into law and order, it is remarkable the DCA is making such big cuts in the justice system."
PCS official Nick McCarthy said he feared further cuts could follow the next spending review.
"If the government is serious about justice it needs to step back from making cuts on such a scale," he added.
The announcement of cuts "will only serve to create uncertainty among hard-working staff who support the justice system", Mr McCarthy said.
The PCS says jobs in the DCA's human resources and administration departments and the Court Services security and administration departments are at risk.
A PCS spokesman told BBC news the union had 14,000 members working in the DCA and the Courts Service.
In December, 33 courthouses out of 350 in England and Wales closed for a day when about 6,000 court staff held the first strike in their 800-year history.
The strike followed a pay offer the DCA said was worth an average 3.7%.