In what the company described as a "precautionary statement", it said around 400 jobs would go in late January or early February as work at the factory on North Tyneside dries up. A further 400 staff could be laid off if negotiations with companies interested in buying all or part of the operation are not swiftly concluded.
Unions said Parsons' 1,500 remaining employees were shocked by the news, which had come after the management had been giving the workforce more optimistic signals about the continuing discussions with outside bidders.
Barney McGill, the works representative for the Confederation of Shipbuilding and Engineering Unions, said: "The workers here were stunned by the announcement. In the run-up to Christmas this is a severe blow for those involved and the scale of the redundancies were definitely unexpected. However, we've come a long way since the original announcement by Rolls-Royce back in July and we are probably more optimistic that the company can be sold than a few weeks ago."
Rolls had given all the staff protective redundancy notices early last month to comply with employment law which stipulates that workers must be given 90 days' notice before losing their jobs.
Since the decision to sell or close Parsons the plant has not been bidding for new orders. One reason for the job cuts is that work has been coming to a close on one of the last big contracts, to make turbines for a 110 megawatt gas-fired power station under construction in Godavari in India.
It also emerged that a much bigger Indian contract, to build a huge coal- fired station at Balagarh, had fallen through. Rolls said it had withdrawn from bidding for the work after deciding to leave the heavy power generation business.
Last night the company insisted it remained "fairly confident" that it could sell Parsons. Rolls-Royce has made provisions of pounds 250m for the possible closure of the business, along with a boiler plant at Rolls-Royce International Combustion in Derby which employs 900. But experts have cast doubt on the chances of selling Parsons in an industry which has huge overcapacity.