Microsoft Studios in Vancouver has reportedly laid off all 35 members of staff and cancelled Microsoft Flight and Project Columbia.
The studio was also working on a AAA Kinect shooter.
"Microsoft Studios has decided to end development on Microsoft Flight and Project Columbia. As a result of this action, some positions within the development teams have been eliminated. Microsoft human resources is working with the affected individuals to find new roles within the company," said a statement from the company.
"Microsoft Studios is always evaluating its portfolio of products to determine what is best for gamers, families and the company, and this decision was the result of the natural ebb and flow of our portfolio management. Many factors were considered in the difficult decision to stop development on Microsoft Flight and Project Columbia, but we feel it will help us better align with our long-term goals and development plans.
"Microsoft Studios is invested in British Columbia and still has several teams, both in Vancouver and Victoria, which will continue to produce the best entertainment and gaming experiences possible."
A post on a Facebook page about innovation in Vancouver claimed that the entire staff at Microsoft Vancouver had been laid off as a result of the project cancellations.
The post reads: "We've just gotten word that the entire studio at Microsoft Games Studios on 840 Cambie has been laid off. 35 people in total. This is nuts. We'll update with more when we can."
Microsoft Vancouver employees have also tweeted about the layoffs.
"This is what one wears when they get laid... Off. #jobsearch" and "These guys... Hella awesome <333 adopt one today!" tweeted Tara Mustapha.
Another former employee, Mia Jerri, tweeted: "Now I can add 'casualty of the Vancouver games industry' to my list of achievements. On a good note, the weather is LOVELY today."
We'll update this story as it unfolds.