The Government decided a year ago to close KiwiRail's Hillside workshops, Dunedin's Mayor Dave Cull says.
Mr Cull, and the Labour Party, say it was a political decision and the announcement yesterday that about 90 staff will be laid off is a blow to the city.
"The decision was effectively made a year or so ago when the Government decided it was no longer prepared to support KiwiRail being in the business," Mr Cull says.
"It's the end of Hillside workshops and their long history."
The workshops have been making and repairing trains since 1875 but KiwiRail says there isn't enough work lined up to keep them going.
The foundry has been sold to Australian company Bradken, which is keeping 18 staff, and seven are being retrained by KiwiRail.
Labour's Dunedin South MP Clare Curran said KiwiRail chief executive Jim Quinn acknowledged yesterday it was a political decision.
"It was a directive from the Government that KiwiRail must have a sustainable work plan - and that was code for shutting down parts of the network it decided couldn't be profitable," she told Radio New Zealand.
"These workshops could still be making trains. There was a proposal put to the KiwiRail board very recently to build 100 wagons, it was economically sustainable but it was knocked back."
National's Dunedin-based list MP Michael Woodhouse says other manufacturing industries in Dunedin will pick up some of KiwiRail's skilled workers and the Christchurch rebuild will provide jobs for others.
"This is a very disappointing result for Dunedin... but the Government is investing nearly three-quarters of a billion dollars of taxpayer money into KiwiRail over the next three years and the only expectation the Government has is that KiwiRail gets maximum value for that investment," he says.