Nissan is cutting almost a quarter of the workforce at its assembly plant in Sunderland.
The plant had sent workers home early before Christmas to cope with the crash in demand for new cars, but now said it will cut 1,200 jobs.
It opened in 1986 and employs around 4,900 workers.
The plant assembles the Qashqai, Micra and Note.
Paul Everitt, SMMT chief executive, said: "While the announcement is desperately sad for those involved, it confirms the fears the industry has expressed over the last couple of months.
"Swift action is necessary to limit the extent of the damage and ensure we retain valuable industrial capability.
Everitt urged the Government to ease access to credit and finance, incentives for companies to retain skilled employees and maintain investment in new technology. He also wants it to provide incentives to encourage the take up of new vehicles and maintain public procurement of new vehicles.
He said: "These measures will ensure the UK automotive industry is best placed to exploit the economic upturn when it comes."
Joint general secretary of Unite Derek Simpson said the news was devastating for the workers and thier families.
Simpson said: "It shows just how serious Britain's economic difficulties are.
"Unite will be doing everything possible to minimise compulsory redundancies and it is absolutely crucial that these workers' skills are not lost. The economy will improve and when it does Nissan will need these workers again. The Government must support these workers through opportunities to re-train or to develop their skills."
Simpson said that he hoped the lessons over the collapse of Rover had been learnt.
He said: "In 2005 thousands lost their jobs after the fall of Rover, most of them were forced to abandon manufacturing and take a pay cut just to stay in work. It is imperative that we protect our skills base otherwise Britain will come out of recession considerably weaker.
“There is no doubt that 2009 is going to be a harsh year. Gordon Brown must continue to do what it takes to stimulate the economy and get people spending again. These job cuts lay bare the human cost of the credit crunch."
Unite is pressing for a £13 billion strategic support package for manufacturing from Government, similar to the support provided by the German, French and Swedish governments to their manufacturing sector.