Tertiary Education Union (TEU) organiser Phil Edwards said the union had received confirmation about the moves, which would mean about six fulltime equivalent (FTE) staff made redundant.
The university is looking to make savings to its budget and is in the process of several "management of change" processes.
The Christchurch-based physiotherapy clinic was one of the first departments to complete the process.
After a management of change process, initiated on June 28, by Physiotherapy School dean Prof Leigh Hale, the Christchurch physiotherapy clinic will close on November 24 with the loss of 5.83 FTE.
Prof Hale said the Christchurch clinic was created to provide clinical placements for some of the school’s physiotherapy students in Christchurch and most recently was used for about 30 students over five six-week rotations annually.
"We are aware this is difficult and unsettling for our staff, and we are working closely with them to ensure they are supported through the process," Prof Hale said.
"The Christchurch physiotherapy clinic has struggled to attract enough patients for the students who train there, as well as for the staff of five registered physiotherapists."
Prof Hale said as a result, and "despite trialling a variety of operational changes to reverse this trend", the clinic had not been able to generate enough income to significantly offset its running costs.
"The building lease for the clinic is due for renewal in December, so this is an appropriate time to review our existing arrangements," she said.
But the TEU believed the decision was short-sighted.
"The clinic’s purpose was to provide clinical placements for physiotherapy students during their undergraduate studies and functioned as a practising clinic which provided a service to the community," Mr Edwards said.
He said the TEU was concerned the decision to close the clinic would "result in a long-term decline in the quality of clinical education offered by the university in response to what may be a short-lived financial crisis".
"In addition to the threat to student outcomes is the loss of access to quality physiotherapy provision and the end of the educational careers and livelihoods of its hardworking and loyal staff," Mr Edwards said.
He said the proposal’s plan to outsource student placements to private clinics was deeply troubling as it sought to shift the cost to the private sector, which had limited capability in educational provision.
"The TEU believes that this will undermine the university’s reputation generally and its relationship with the physiotherapy profession specifically."
A Christchurch physiotherapist, who declined to be named, said Otago University’s clinic provided a "very good option" for low-income people.
"I have referred people to the clinic’s services," he said.
"They’re very good at what they do."