A majority of the workers who lost their jobs were employed by subcontractors Tenix and Killarnee.
Rio Tinto, however, retained all of the 750 mining workers and plans to continue with the underground mine expansion that cost the company $2.2bn.
The company is targeting April 2013 to achieve first production at the beleaguered Argyle mine but the recent decision may delay plans until 2015.
According to the company, current focus is on ramping up to the first production instead of continuing construction work.
Since Rio commenced mining at Argyle in 1985, the mine had produced over 600 million carats of diamonds and is the primary source of the company’s signature pink diamonds.
Major mining companies, including BHP Billiton are looking to reduce costs and focus on more profitable operations such as iron ore due to a volatile commodity market.
BHP had also recently cut nearly 100 jobs at its Olympic Dam project in South Australia.
