It said it expected to lay off up to 730 people at the Fenland Foods factory, which makes M&S’s best-selling chilled lasagne, in Grantham, Lincs.

Northern Foods chief executive Stefan Barden said: “We couldn’t arrive at a contract where we could make a profit.

This is a story which reflects the turnaround at Northern Foods. We are no longer prepared to make products where we generate no profits.”

The company will still make M&S ready meals at two other sites.

An M&S spokesman said there would be no lasagne shortage.

Northern Foods said the closure would hit revenues by £45million but would have no impact on profits.

Barden said the factory could re-open if new customers could be found.

The company’s shares fell 3p to 85dp, while Marks & Spencer’s dropped 7p to 398.5p.