Australia's film industry has been dealt a blow with the decision by US entertainment giant Walt Disney Co to close its animation production studio in Sydney.

The closure of DisneyToon Studios Australia (DTSA) in mid-2006 will cost about 250 jobs, the company said.

"It is with regret that DisneyToon Studios has decided to close their animation production facility in Sydney in mid-2006," the company said in a statement today.

"This closure is a business decision due in large part to the changing creative climate and economic environment in which DisneyToon Studios requires more flexibility to choose the most appropriate and efficient animation process."