Quantum Corporation, which established its Irish operation in 1991, is to shutdown the factory in the middle of next year.
The company said it was outsourcing its repair operations, most likely to Eastern Europe, to cut costs.
"This was a difficult decision, particularly because of the impact on our 250 employees in Dundalk who have greatly contributed to Quantum," it said.
The decision was taken following a 30-day review of Quantum's European operations. The company said all eligible employees would be given severance packages and training to find new jobs.
Quantum, which manufactures digital tape drives, announced an expansion programme two years ago which was to create an extra 120 jobs.
Local Fine Gael TD Fergus O'Dowd said the latest job losses meant 1,000 jobs had gone in the area in the last three years. He blamed Government policies for Ireland becoming increasingly uncompetitive.
"We've had six years of higher than average inflation, so it's no wonder that manufacturers are leaving Ireland for lower cost countries."