Microsoft has announced it will be shutting down UK developer Lionhead Studios and cancelling the development of its upcoming action-RPG, Fable Legends.

The unexpected news was broken by Microsoft Studios Europe's general manager, Hanno Lemke, who also announced the shuttering of Denmark-based Press Play Studios - the creator of Kalimba, Max: The Curse of Brotherhood, and Tentacles: Enter the Mind.

Lionhead, formerly led by veteran game developer Peter Molyneux, was acquired by Microsoft in April 2006.

The studio, which made a name for itself with titles including the god game Black & White, was the driving force behind Microsoft's Fable franchise, and had been working on what would've been the next entry in the series, Fable Legends, since 2012.

Writing on Xbox Wire, Lemke spoke of the "difficult changes" Microsoft was making in order to "focus its investment and development on the games and franchises that fans find most exciting and want to play."

Although Lemke states that Microsoft is only talking to Lionhead employees about the "proposed closure" of the studio, it seems the shuttering is an inevitability at this stage.

"After much consideration we have decided to cease development on Fable Legends, and are in discussions with employees about the proposed closure of Lionhead Studios in the UK," added Lemke.

"These have been tough decisions and we have not made them lightly, nor are they a reflection on these development teams.

"We have nothing but heart-felt thanks for the members of Lionhead and Press Play for their contributions to Xbox and gaming."