Birmingham University's new vice-chancellor, Michael Stirling, has told academics and support staff that up to 100 jobs may be axed as part of a restructuring programme.
The university's council this week agreed to set up a redundancy committee, to be appointed by Professor Stirling, that will negotiate with unions and sanction any job losses.
The move follows claims that the university is facing a financial crisis, with a budget shortfall of £5.7 million this year, as a result of having to find matching funding for new buildings.
But Professor Stirling said that the job losses were necessary to cover the cost of investment in growth areas of the university. Departments that have been in decline, such as engineering and chemistry, are expected to bear the brunt of redundancies.
Professor Stirling said that compulsory redundancies could not be ruled out. Birmingham could no longer afford to "ride out the storm" of falling rolls in problem areas and of underfunding, he said.
Attempts to find short-term solutions to funding problems 18 months ago had failed to secure enough extra income, and it was unlikely more money would be available through the research assessment exercise, he said.
"We are seeing strong market growth in some areas of the university, and we need to staff up to take those students on and teach them properly. The problem is we do not have enough spare capacity in our funding without... losing staff in areas where we have seen a market fall."
The Association of University Teachers has responded angrily to the announcement. It has called for an independent inquiry into mismanagement.
Birmingham AUT leaders claimed that some of the university's new buildings including the European Research Institute, which was recently visited by prime minister Tony Blair, had cost three times more to build than the average.
William Edmondson, president of Birmingham AUT, said: "This situation is appalling and incomprehensible to our members. They devote their lives - for many hours more than they are contracted - to ensure the success of the university. We believe this so-called crisis has been contrived by management eager to force their own agenda onto the university.
"We have delivered everything asked of us in terms of quality and research, but we are now being told to sacrifice our careers because of mismanagement at the highest level of the university. There must be an independent inquiry into what has caused our previously wealthy university to be sabotaged in this way."
Professor Stirling dismissed claims that he was having to deal with the impact of poor management decisions before him.