Remploy is proposing to close 36 of its 54 factories with potential compulsory redundancies of more than 1,700 disabled workers, it was announced today.
Minister for Disabled People Maria Miller said the Remploy board was proposing to close the sites by the end of the year because they were unlikely to achieve independent financial viability.
She said the £320 million budget for disability employment has been protected, adding that the money will be spent more effectively.
In a written ministerial statement responding to a Government-commissioned review into disability employment, Ms Miller said savings from policy changes being announced will be used on "proven employment programmes" to benefit "many more" disabled people.
The minister said she had assessed "very carefully" the needs of Remploy workers, as well as the 6.9 million disabled people of working age who could benefit from greater specialist employment support.
She said: "The Government will reduce its current subsidy to Remploy from the beginning of the new financial year so that we cease funding factories which make significant losses year after year and restrict funding to those factories which might have a prospect of a viable future without Government subsidy."
Remploy will shortly begin consulting with unions on the proposed closure of the 36 factories and on the potential compulsory redundancy of 1,752 people at the sites, most of them disabled workers, she said.
Phil Davies, national officer of the GMB said: "This decision to sack 1,752 people in 36 Remploy factories across the country is one of the worst decisions that this discredited coalition government has taken since coming to office.
"Thousands of disabled workers will now pay with their jobs for the incompetence of this government and other public sector bodies that did not take advantage of EU procurement rules that allow supported manufacturing jobs for disabled workers. These factories have lacked support for years and have never been properly loaded with enough work to make them economically viable."
Kevin Hepworth, Unite's national officer added: "GMB and the other trade unions in Remploy will not stand by and allow this attack to go unanswered."
Shadow work and pensions secretary Liam Byrne said it was "disappointing" that the DWP announced the closures in a written statement rushed out after Prime Minister's Questions, denying MPs the chance to quiz David Cameron on the "callous decision".
Labour MPs lined up to criticised the move, raising points of order in the Commons.
Geraint Davies (Swansea West) condemned the "clandestine, cloak and dagger assassination" of Remploy.
Chris Bryant, whose Rhondda constituency includes the Porth factory due to shut, said the statement had been "sneaked out", adding: "It is unfair to disabled people in this country to treat them in this way. It's a disgrace."
Ian Lucas (Wrexham) said Ms Miller "should be ashamed of herself", telling MPs: "She should come here and if she is making the right decision she should make the arguments."
Ann Clwyd (Cynon Valley) attacked the "extreme discourtesy" over the way in which today's announcement was made, claiming: "It is an utter disgrace to do this to disabled people."
Commons Speaker John Bercow suggested MPs use parliamentary tools to force a minister to the dispatch box.
Leighton Andrews, the Welsh Government's Education Minister, said: "The announcement accepts proposals for the closure of seven Remploy factories in Wales - Aberdare, Abertillery, Bridgend, Croespenmaen, Merthyr, Swansea and Wrexham - with 272 workers affected.
"I understand that the factories in Porth and in Neath are considered, in the words of the UK Government, to be 'potentially viable'.
"This announcement will be devastating for those workers, their families and the local communities.
"In our submissions to the UK Government, the Welsh Government has made clear our vigorous opposition to such closures, not least at a time of economic hardship, and an extremely unfavourable labour market.
"This situation is particularly acute for those who are already facing considerable obstacles and are one of the groups at greatest disadvantage in today's labour market.
"I regret that repeated requests by Welsh ministers for a constructive dialogue on Remploy factories in Wales have not been taken up by the UK Government."
The Employers' Forum on Disability, which represents more than 300 employers, welcomed the announcement that many of the recommendations in the Sayce Review are to be taken forward by the Government.
Chief executive Susan Scott-Parker said: "The Government's implementation of the Sayce Review recommendations is good news for everyone.
"The UK already benefits from nearly 3.5 million disabled people already in employment. Today's announcement is a much-needed step towards eliminating the barriers to employment faced by the many people with disabilities who want to work but are denied the chance to compete.
"The improvements to the Government's Access to Work scheme signalled today will allow enhanced labour force mobility for the 3.5 million disabled people already in work, the 2% of the UK working age population that becomes disabled each year and the tens of thousands of active disabled jobseekers.
"Any improvements to Access to Work are to be welcomed - the scheme is one of the Government's best-kept secrets, generating £1.44 return for every £1 spent by the Exchequer."
Liz Sayce, author of the review and chief executive of Disability Rights UK, said: "The Access to Work programme must expand. We currently face a crisis of disabled youth unemployment - being 'not in education, employment or training' is twice as common amongst young disabled people, as non-disabled.
"Without individualised employment support there is a real risk they will become a lost generation, out of work for life, and that others will slip out of work unnecessarily.
"Access to Work is popular with those who use it, and cost- effective, but widely unknown. With reform and vigorous promotion it could transform disabled people's opportunities."
The group's vice chairman, Phil Friend, said: "Organisations led by disabled people have campaigned long and hard for employment support on our own terms, so we can work in every type of job and every part of the economy. That is the right model for the future.
"Disabled people are tired of being painted in the headlines as scroungers and just ask for the individual support we need to have a fair opportunity to work alongside everyone else.
"While the Remploy factory model was right for the 1940s but unsustainable today, it is crucial that Remploy employees have the right support - intensive where needed - to secure their financial security and move into open employment or social enterprise."
Unite union general secretary Len McCluskey said: "This is a barbaric decision. The Government has sunk to a new low by sacking over 1,000 disabled workers.
"To choose to cut these jobs only a few days after the Government passed the Welfare Bill is proof it has no intention of helping the most vulnerable in society; instead the coalition is only making life worse.
"In the worst economic crisis since the 1930s, these workers' prospects of finding work are almost zero. Unite is determined to fight this decision."
The GMB union obtained a list of the factories earmarked for closure:
Aberdare, Aberdeen, Abertillery, Acton, Ashington, Barking, Barrow, Birkenhead, Bolton, Bridgend, Bristol, Chesterfield, Cleator Moor, Croespenmaen, Edinburgh, Gateshead, Leeds, Leicester, Manchester, Merthyr Tydfil, Motherwell, Newcastle, North London, North Staffs, Oldham, Penzance, Pontefract, Poole, Preston, Southampton, Spennymoor, Springburn, Swansea, Wigan, Worksop and Wrexham.