BAE Systems will axe 1,775 shipbuilding jobs and close the historic Portsmouth yard in Britain as government austerity hits demand, the British maker of military equipment said on Wednesday.

The yard in Portsmouth, on England's south coast, will be closed in the second half of 2014, but an engineering team will be retained to support new Type 26 warships, which will be built in Scottish city Glasgow, BAE said in a statement.

The undisclosed cost of restructuring BAE's shipbuilding business will be borne by the Ministry of Defence (MoD), the company added.

At the same time, the British government is imposing deep cuts to defence budgets as part of a round of sweeping public spending reductions aimed at slashing the nation's deficit.

The MoD also announced plans on Wednesday for BAE to build three new Offshore Patrol Vessels for the Royal Navy. BAE's share price ended the day up 0.55 percent at 455.8 pence on London's FTSE 100 index, which closed flat.

A total of 940 jobs will be lost in Portsmouth, with another 835 axed in Filton in the southwest and at facilities in Glasgow and Rosyth in Scotland by 2016.

Prime Minister David Cameron described Wednesday's announcements as "extremely difficult decisions and our first thought should be with all of those who are affected".

He told parliament: "In Portsmouth, yes there will be job reductions but there are many more people involved in ship servicing than ship building, so the workforce will go from 12,000 to 11,000."

Portsmouth is steeped in naval history, and is home to Admiral Lord Horatio Nelson's preserved flagship HMS Victory, upon which the British war hero died during the Battle of Trafalgar in 1805.

BAE Systems said it had reached a deal with the government "to enable the implementation of a restructuring of its UK naval ships business" resulting in the loss of 1.3 percent of its global workforce of 88,200 people.

"Consultation will commence on a total employee reduction of 1,775," it added.

BAE said it had experienced a "significant" reduction in workloads following the peak of activity on its current programme to build two aircraft carriers.

'Devastating blow'

Trade unions described the cuts as a "devastating" blow for the industry.

"There is no doubt that this is a devastating day for the UK shipbuilding industry," said David Hulse, a senior official with the GMB union.

The newly-commissioned MoD ships will meanwhile be built at BAE's shipyards on the (river) Clyde, Glasgow, and will play a "key role" in counter terrorism, counter-piracy and anti-smuggling operations, the MoD said in a statement.

"This deal will provide the Royal Navy with three brand new maritime patrol vessels with a wide range of capabilities which will support our national interests and those of our overseas territories," said Defence Secretary Philip Hammond.

"This is an investment not only in three ships but in this country's warship building industry. It prevents workers standing idle and sustains the vital skills needed to build the planned Type 26 frigate in the future."

In addition, the MoD will invest more than 100 million pounds ($161 million, 119 million euros) to expand the dock at Portsmouth, which will become home to the two new aircraft carriers -- HMS Queen Elizabeth and HMS Prince of Wales.

Hammond revealed that the cost of the two new aircraft carriers had risen to 6.2 billion pounds. That was more than double the original 3.0-billion pounds cost when the deal was announced back in 2007 under the previous Labour government.

BAE, which has been rocked by government cutbacks to military spending worldwide, was also hit last year by the collapse of a proposed mega-merger with European aviation giant EADS.

Paris-based EADS recently warned that it will have to apply tough restructuring to its own defence activities.