Banjo and Viva Piñata studio Rare has already axed a number of positions in its art and engineering teams, GamesIndustry.biz understands.
Around 12 positions have gone in both departments, and the company is also reducing the number of project leads, asking employees to reapply for positions elsewhere within the company.
Microsoft Game Studios announced on Tuesday that it intends to restructure the highly-regarded team, in order to simplify development.
By adopting new business and development processes, Rare hopes to be more reactive to the wider changes hitting the Microsoft Corporation, which has led to the company shedding 5000 employees.
However, despite the changes, Rare is currently at work on four different projects and continues to be a flagship studio for Microsoft Game Studios. Earlier this month, Microsoft's Chris Lewis told GamesIndustry.biz that original IP would not be sacrificed by MGS in favour of working on popular franchises.
"If you batten down the hatches and simply work where you know you're already strong, that doesn't give you the future growth that we're all hungry for," he said.
A spokesperson for Rare declined to offer any official comment.