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The government-owned Forensic Science Service, which employs 1,600 people, is to be wound up - closing by 2012.

Crime Reduction Minister James Brokenshire said the Birmingham-based service was losing about £2m a month and could run out of money in January.

Its evidence was key to the arrest of serial killer Steve Wright and in the case of missing girl Shannon Matthews.

The Prospect union, representing 1,000 FSS professionals, said the decision made a "mockery" of the justice system.

Its deputy general secretary Mike Clancy said: "Cost will now determine justice in the UK. The government is putting its faith in an untested market to deliver forensic science at a time when it has never been more important to the detection of crime."

The decision would "destroy a world-class body" that was envied by international police and lead to an over-emphasis in profits in the sector which could threaten the quality of the science, he added.

However, the FSS had faced increased private-sector competition for police contracts and Mr Brokenshire told the ´óÏó´«Ã½ this was enabling forces to achieve greater efficiency.

"They're seeing better turnaround in terms of the way in which forensics are being processed," he said.

The FSS has two offices in Birmingham and sites in Chepstow, Chorley, London, Huntingdon and Wetherby.

In a statement, the FSS said spending cuts meant police forces had less money for forensics consultancy and were increasingly taking such work in-house.

It said it had raised such concerns to the Home Office and was "disappointed" that they had not been addressed before the winding-up decision was made.

In a written statement to MPs, Mr Brokenshire had said it was vital for the government to take "clear and decisive action" to sort out the FSS after it got into "serious financial difficulty".

"The police have advised us that their spend on external forensic suppliers will continue to fall over the next few years as forces seek to maximise efficiencies in this area," he said.

"We have therefore decided to support the wind-down of the FSS, transferring or selling off as much of its operations as possible."

DNA evidence gathered by the FSS led to the arrest of Ipswich murderer Wright within days of the discovery of his fifth victim.

The company also provided toxicology evidence against Karen Matthews and Michael Donovan which helped ensure their conviction for kidnapping and drugging schoolgirl Shannon.

´óÏó´«Ã½ legal affairs analyst Clive Coleman said the FSS had enjoyed significant successes and had a good reputation, despite one or two failures such as the Damilola Taylor murder inquiry where DNA evidence was initially missed.

He said private enterprise, which already made up 40% of the market, should expand to fill the gap left behind by the FSS.

However, there were concerns that commercial pressures might mean additional tests and analysis were no longer done.

"There is a concern from some lawyers that perhaps if you're simply looking at the bottom line… critical evidence might not come to light and be produced in court," he added.

The FSS has been government-owned since 2005.

Scotland is unaffected by the announcement, as the is responsible, while Nothern Ireland has its own agency, .