A University struggling to cope with a multi-million pound funding shortfall has told thousands of staff to expect job cuts.

Alasdair Smith, vice-chancellor of the University of Sussex, warned employees the university was facing serious financial problems and that voluntary redundancies were inevitable.

He could not rule out compulsory redundancies.

Cuts have to be made to plug an annual deficit of £3-£4 million, blamed on Government underfunding of higher education.

In a letter to all staff, Professor Smith said the university had to make savings of four per cent out of a total spending of almost £100 million.

Staff in all departments are threatened with redundancy, including lecturers.

Each department has been told to come up with money-saving schemes.

Mr Smith, in his letter, said: "Naturally people will be most concerned about jobs.

"The cost of the 2,200 staff employed here represents at least 60 per cent of our annual spending so we cannot make savings of four per cent in spending without some reduction in staff numbers.

"There will need to be a programme of voluntary redundancies.

"I hope we can avoid compulsory redundancies but cannot give a guarantee at this stage."

Although changes to how student fees are paid to universities will earn Sussex University an extra £10 million in 2006, the vice-chancellor said it would be negligent not to address the overspending now.

The Argus reported in January how millions of pounds had been wasted installing a network of cables at the university.

Project management failures sent costs spiralling from £2 million to an estimated £4.75 million over the lifetime of the new network.

At the time staff feared it could lead to cuts in funding.

A spokesman for the university said the cost was a one-off and was not related to the latest financial problems which were about long-term spending.

Professor Smith said savings had to be made now because any deficit, year-in-year-out, would eat up any new income.

That could cut investment in growth and development and hamper the university's future.

He told staff the overspending was partly due to a lack of overseas and post-graduate students applying to Sussex.

Jim Guild, president of the Sussex Local Association of Association of University Teachers, blamed the cutbacks on university management.

He said no figures on job losses had been put forward but estimated they would be substantial.

Mr Guild said: "On Wednesday we passed a motion of no confidence in the university management and the university council.

"We are opposed to redundancies of any kind, not only against academic staff but any jobs in the university.

"This has to be alarming for students who do not know what will happen to provision of teaching and support."

All proposals for new staff at the university will be scrutinised by the vice-chancellor to ensure they are necessary.

The university's senior management group is aiming to have a savings action plan ready by next spring.

A university spokesman said: "We are a successful university ranked by the recent Times Higher world rankings as one of the top ten in the UK and the top 20 in Europe. We are continuing to take action to maintain and strengthen this position."

He said the university was not in debt because previous overspending had been covered by its cash reserves.

Saving recommendations will be made to the university's finance committee in February.