Almost half the staff working at the Victorian base of Australia's IT research organisation NICTA were made redundant on Monday, after the state government withdrew millions of dollars in promised funding over concerns the organisation was becoming too Sydney-centric.

Management told staff at the Parkville laboratory the cuts would take effect immediately. Of the 70 full-time staff in Victoria, 30 will lose their jobs.

NICTA researchers work on a variety of projects - from designing the visual processing and wireless microchip for the bionic eye to building software that can watch and analyse live cells as they grow. Another project, Gossamer, allows researchers to assemble DNA fragments using cheap computers rather than supercomputers.

It is understood the state government has withdrawn up to $8 million from the $10 million promised over two years.

NICTA chief executive Hugh Durrant-Whyte said the cuts would see three Melbourne-based research groups close entirely: the health and life sciences group; optics and nano electronics; and the control and signal processing research group.