Around 55 staff members at Driveclub developer Evolution Studios have been let go.
Sources speaking with Eurogamer said they were informed of the redundancies on Friday.
In a statement, Sony said Evolution will now focus on DriveClub as a service, particularly the PS Plus Edition.
"We will be restructuring Evolution Studios to ensure that SCE WWS and in particular, Evolution Studios are in the best position to achieve these goals," said Sony. "Our first party development studios are key to our creative strategy and we are very excited about the future projects being worked on and the role Evolution Studios will play."
"We will be looking to relocate team members throughout the studios, but unfortunately some redundancies will be necessary and in those cases we will assist staff in any way we can."