Channel 4 is planning to close FilmFour's sales and distribution arms - a move which it says will lead to "significant job losses".

The station's board announced its decision on Tuesday after two years of financial losses by FilmFour.

Chief executive Mark Thompson announced the company's production division would be "re-integrated" into Channel 4's main television operation.

C4's Thompson: "Significant job losses"

He said a new �10 million annual film commissioning fund would be included in Channel 4's programme budget.

A new head will be appointed for the channel's film division to manage the budget - but FilmFour's current chief executive, Paul Webster, has said he does not wish to be considered for the post.

The proposal will now be put to FilmFour's staff as part of a statutory 30-day consultation period. 59 people work at the company's base in central London.

Mark Thompson said: "We are moving away from our recent focus on larger-budget, international projects and towards producing the kind of cutting-edge British films that have been part of Channel 4's cultural and creative success of the last 20 years.

"Finding and supporting new talent will remain a priority, which is why we will continue to back our experimental, low-budget unit, FilmFour Lab."

Commitments

Channel 4 has said it will try to use its fund to attract outside investment to "significantly increase" the total budget value of films in production.

It will also continue to have a role in securing UK and international distribution through third parties on the majority of its films.

Channel 4 will meet the existing production commitments of FilmFour, including Motor Cycle Diaries and Edgardo Mortara.

Trainspotting was a major hit for the studio

Rob Woodward, managing director of 4Ventures - the parent company of FilmFour - blamed the studio's failure on the difficulty of competing with major studios.

"Over the last four years significant investment and hard work has gone into FilmFour Ltd to develop it as a meaningful player internationally.

"However, this has not proved possible given the sheer scale of the major studios.

"Despite the efforts of everyone at the company, we have concluded that Channel 4 does not have the scale to make a financial success of this model," he said.

The FilmFour TV channel will be unaffected by the changes.

FilmFour produced many of Britain's most successful films over the last 20 years, from Trainspotting and the Crying Game to Four Weddings and a Funeral.

Four years ago the company was set up as a stand-alone studio to rival those in Hollywood.

Although it had successes like East is East, it recently suffered a series of box office flops, including Charlotte Gray, starring Cate Blanchett.