It was one of the few quality newspaper success stories left in the developed world, but now Spain's El País is to axe a third of its workforce as the country's media sector shrivels under the combined weight of the global newspaper crisis and a worsening domestic recession.

The announcement has provoked bitter tensions within the newspaper as fears grow that the sale of a major share in El País's debt-laden parent company, Prisa, to a group of New York-based investors in 2010 will lead to the paper being bled of resources or sold off. Juan Luis Cebrián, the veteran former El País editor who is now Prisa's chief executive, dropped the bombshell on the workforce a week ago. Of the 464 staff, the company plans to sack 128, send 21 into early retirement and exact a 15% pay cut from the remainder. Under labour law changes introduced earlier this year, the cost of shedding one-third of the workforce is about half what it would have been in 2011.

Journalists at the paper responded with a two-day withdrawal of bylines, and plan to begin disruptive stoppages shortly. As tempers frayed, a union meeting urged the editor, Javier Moreno, to resign while Cebrián was urged to pay back millions of euros he has earned in recent years. Management claimed the paper's survival was at stake. "Either we change our model and the newspaper's structure or we cannot continue producing El País," said the newspaper's chief executive, José Luis Sainz.

There was a confrontation between Cebrián and another former editor, Joaquín Estefania, in a meeting with senior staff, amid concerns that Moreno was losing power over his own paper. "I doubt he will last beyond the summer," said one disgruntled senior journalist.

Moreno won a battle to persuade journalists to put their bylines back on articles last week, though union delegates denounced strong-arm tactics. "These actions on the part of Moreno have created an irrevocable split between the newsroom and its editor," the newspaper's union chapel said. "In the light of this, the El País workforce takes the view that Javier Moreno is now unfit to occupy his post."

Management argue that the historically profit-making paper finally began to lose money in August and that revenue was down €200m since 2007. Sales are expected to fall 10% this year to 320,000.

"We are not going to put out the same newspaper with fewer resources. It is time for a new transformation," said Moreno. It was not clear, however, what that new model involved for a brand that aims to be the global Spanish-language newspaper.

El País recently lost its digital boss Gumersindo Lafuente, who had turned around the paper's lacklustre online presence, amid rumours that he was fed up with foot-dragging over future plans.

More importantly, El País's founder and owner Jesus Polanco died in 2007, bringing an uncertain end to three decades in which the moderately leftwing paper had established itself as Spain's top-selling daily.

Three years later, a group of investors headed by the "homeless billionaire" Nicolas Berggruen (who lives in hotels) and British-born Martin Franklin took a major share in Prisa and dug it out of a €4.7bn debt hole; Cebrián told the Guardian then that the future would bring "very deep change".

Cebrián, who also claimed the slide in sales of El País could be reversed, said he would stand down in 2013. Sales then were running at 375,000. The €650m deal reduced the holding of a core group of paternalistic shareholders, led by the Polanco family, from 70% to about 30% of Prisa.

El País, referred to by Berggruen as a "trophy asset", represents less than 10% of Prisa's business, with pay television and educational publishing its two biggest units.

"Our interest is in fixing the balance sheet, not in fixing the editorial content," Franklin told the Guardian at the time. "What we want is a well-governed public company." Shortly after the deal was completed, Prisa announced that it would be cutting its 2,500-strong global workforce by 18%.

The massive job losses at El País came as two of Spain's other biggest newspaper groups, El Mundo publisher Unidad Editorial, and ABC publisher Vocento, were shedding employees too.

Spain's overpopulated TV news industry is also shrinking, with the state broadcaster TVE announcing a plan to reduce salary costs by 25% and Valencia's regional broadcaster sacking 1,200 people. Prisa closed its CNN+ news channel in 2010, while recent mergers bringing together the private broadcasters La Sexta with Antena 3 and Tele5 with Cuatro are also shrinking Spain's journalism pool.

El País's struggles are only one part of a succession of editorial cutbacks that demonstrate how hard the country's economic crisis is hitting its media landscape.