Dunedin Mayor Dave Cull says the purchase of the foundry operations at the Hillside railway workshop essentially means the end of Hillside.
The foundry has been bought by Bradken, an Australian company.
KiwiRail on Thursday said it could not find a buyer for the workshops and up to 90 employees will lose their jobs.
Mr Cull says it is rough news less than six weeks out from Christmas but the decision was essentially made about a year ago when the Government decided it was not prepared to support KiwiRail in the business.
National's Dunedin list MP Michael Woodhouse says he is confident local businesses will pick up some of the skilled workers losing their jobs.
He says the job losses are disappointing but are tempered by the fact the foundry will stay open and the heavy lifting crane will be there.
"And I am confident that even in these challenging times, the other manufacturing industries in Dunedin will pick up at least some of those skilled workers."
Mr Woodhouse says the Government is putting many millions of dollars in taxpayers' money into turning KiwiRail around, and wants the maximum value for the investment.
The Otago Chamber of Commerce is hopeful the foundry business will grow under Bradken and make a positive contribution to the economy, increasing jobs in the future.
The Labour MP for Dunedin South, Clare Curran, describes the closure as economic sabotage.