The animated movie, based on one of Aesop's fables, is being put on hold for six months while the script is redeveloped.
Aardman Animations announced the loss of around 90 jobs just days after a visit from Prince Charles.
The Bristol-based company said it had been forced to make the redundancies because the script for its next film The Tortoise vs the Hare was not up to standard.
The animated movie, based on one of Aesop's fables, is being put on hold for six months while the script is redeveloped.
The film is set to star the voices of Brenda Blethyn, Bob Hoskins and comedian Lee Evans.
Temporary
Aardman - and its creator Nick Park - has won three Oscars for its work including best animation film for Wallace and Gromit vehicles The Wrong Trousers and A Close Shave.
Park won his first Academy Award in 1989 for the short film Creature Comforts.
The company has stressed that the halt on The Tortoise vs the Hare is only temporary.
It is thought to have cost about £25m so far.
About 172 people have been employed on the film and the cuts are expected to be made across the board, from camera crews to animators at Aardman's Aztec West studio.
Aardman spokesman Arthur Sheriff said: "We are devastated. This has never happened within Aardman before and it's a shock to us all."
"We would rather put the film on hold for six months and sort it out than produce an average film."
"Aardman have such high quality control that they will not allow a film to go forward that's not as good as our last movie if not better."
Shrek
He compared the new film, which has been in development for just over a year, to Chicken Run, which spent around two-and-a-half years being developed before it went into production.
He also said that successful animated films Toy Story and Shrek were both halted during production.
Mr Sheriff added: "We hope that in less than six months every one of those people will be back employed."
The announcement comes after a visit by the Prince of Wales to the animation studios, after several fund-raising initiatives for the new Bristol children's hospital.