Microsoft will shut down Ensemble Studios once Halo Wars ships early next year.
The platform holder confirmed the news in a statement released overnight, describing it as "a fiscally-rooted decision that keeps [Microsoft Game Studios] on its growth path".
Inevitably there will be lay-offs, but Microsoft also said "the Ensemble leadership team will form a new studio and has agreed to provide ongoing support for Halo Wars as well as work on other projects with Microsoft Game Studios".
Furthermore, "Microsoft is working to place as many Ensemble employees who do not move to the newly formed studio into open positions within Microsoft as possible."
In order to keep things going in the interim, Shacknews reports word from employees that "incentives" have been offered to prevent them legging it.
Meanwhile, Kotaku reports that Microsoft's Shane Kim visited the Dallas studio personally to deliver the bad news.
Ensemble Studios, founded in the mid-'90s, is best known for its PC real-time strategy series Age of Empires, and was bought up by Microsoft in 2001.
Halo Wars, which is due out exclusively for Xbox 360, is an attempt to adapt some of that RTS knowhow and expand Microsoft's most cherished franchise into new areas. We played a bit of it at E3 and thought it was very promising.