Hundreds more lecturers working for private training organisations that run courses for the unemployed also face losing their jobs as cuts bite.
Courses are being axed as a result of a pound;125 million cut in the training budget awarded to Jobcentre Plus.
The Department for Work and Pensions said that Jobcentre Plus had pound;1.1 billion to spend on its training programmes in 2004-5, but that this year the budget had been cut to pound;962m.
When New Deal was launched following Labour's election victory in 1997, funded by a windfall tax on the utilities, four training options were offered to the unemployed.
Representatives of training organisations said the cuts amounted to a withdrawal of two of the four options, including one offering full-time study for a qualification.
Paul Warner, operations manager for the Association of Learning Providers, said his London members had received a letter from Jobcentre Plus that meant this option was being withdrawn.
But a spokesperson for the Department of Work and Pensions denied this was the case. "The four options will continue to be available," she said.
"Maybe there was some ambiguity in the letter, but we are totally committed to those four options and they will continue."
Among colleges hit the hardest is New College, Nottingham, which is axing 12 of its 14 New Deal courses, affecting between 200 to 300 learners, because of a pound;600,000 reduction in its funding.
Principal Geoff Hall said his college had been preparing to expand its programmes before the cuts were announced.
"It is unbelievable the way this has happened," he added. "If the Learning and Skills Council had behaved like this there would be riots in the street."
He said his college "got very lucky" in that staff working on the programmes were able to be redeployed elsewhere "but in some colleges there must have been actual redundancies".
He added: "In Nottingham, there are about 26,000 on incapacity benefit.
They need things like basic skills and English for Speakers of Other Languages."
Bournemouth and Poole college is facing a pound;230,000 reduction in its New Deal funding. Roger Simons, vice-principal for business development, said it is having to axe one programme for the newly unemployed and its Longer Occupational Training programme which led to a qualification.
The Association of Colleges estimates 100 colleges run New Deal programmes to help the unemployed get back to work, the majority in conjunction with private training companies.
The ALP fears that many training companies will have to lay staff off because of the cuts. It is holding talks with Jobcentre Plus over the affects on its members in London.
A spokesman said: "Jobcentre Plus, in London at least, appears to be reverting to being a job placement agency instead of being an agency that offered training as well.
"These cuts raise some very serious concerns about JCP's commitment to providing learning to its clients, which, in our view, provides the true basis for sustainable employment."
One training organisation operating in north London, described as outstanding by Ali inspectors, estimates it will have to lose up to 50 staff, including 30 teachers, from its 70-strong workforce.
Raj Doshi, director and founder of 5E, said his pound;2m funding for running New Deal programmes, mostly for refugees and asylum-seekers, is being reduced to a trickle and will soon be cut completely.
He said: "It is devastating for all those people who cannot speak English and who do not have basic skills.
"They will not be able to compete in the labour market or the education market and we will be paying them welfare benefits to sit at home. Widening participation, a central plank of government policy, is not taking place."