Almost half of the Scottish Opera company is to be made redundant under radical restructuring, it has been announced.
A scene from Wagner's Ring Cycle, staged by the company
A total of 88 posts are to be cut from the workforce of just over 200.
Scottish Opera had asked ministers for extra funding, but was told money would only be available for restructuring.
Culture Minister Frank McAveety said that the company would receive up to £7m from the executive to meet the restructuring costs.
In return, the company will repay its £4.5m advance over four years.
The executive said it would continue to invest in Scottish Opera subject to the management ensuring that strong financial planning controls were in place.
Consultation on the proposed plan will begin immediately, with technical and administration departments expected to be worst affected, along with the chorus.
The process of restructuring is planned to be completed by June 2005, to be followed by nine months with no full-scale productions.
A joint statement from the executive, the Scottish Arts Council and Scottish Opera said: "Given the core level of funding available, the board has concluded that to secure its long term future it needs to reduce core costs.
"Regretfully this means reducing a number of posts in the company and, for a short period, main scale opera productions."
The company had been receiving £7.5m a year, but argued that it was too small a sum of money for a company of its size.
Members had previously abandoned talks after failing to reach agreement over the redundancies needed to keep the company within its current budget.
The company is in ongoing negotiations to lease the Theatre Royal to another party.
Mr McAveety said the package would mean a two-year period of transition for the company.
He said: "We do genuinely believe there is a redefinition of the role the company should play, and we do not believe it suitable that it should continue to run a commercial theatre in Glasgow whilst also running an opera production company.
"We recognise that it will be a painful process in the short-term but in the long run it is about building an opera company that all Scots can take pride in."
Scottish Opera chairman Duncan McGhie said difficult decisions had to be made and the efforts of the executive were "a tangible sign" of its commitment to opera.
Political reaction to the executive's decision was mixed.
Scottish Opera had asked for extra funding
Liberal Democrat culture spokesman Donald Gorrie said a series of financial bail-outs were not the answer to the company's problems.
"At first sight the agreement seems a fair solution of the current series of financial crises facing Scottish Opera," he said.
"In return for handing the Theatre Royal over to new management and a considerable reduction in staff, Scottish Opera will have a secure financial basis for its future operations."
However, the Scottish Conservatives accused the executive of letting the company down.
Tory culture spokesman Jamie McGrigor said: "Today, we should have received news about a rescue package that allowed Scottish Opera to go forward.
"Instead, we got confirmation of a redundancy deal. For the second time since devolution, Scottish Opera, its staff and supporters have been cruelly let down
by the executive."
The Scottish National Party said it was concerned for the company's future.
SNP culture spokeswoman Roseanna Cunningham said she had doubts Scottish Opera could repay the £4.5m advance.
The remaining workers could decide they have no alternative but to leave the company, she added.