Tamahine had battled to cope over the past 20 years with a deregulated market which allowed a flood of low-cost Asian imports into New Zealand, chairman Trevor Scott said.
That had been exacerbated by the recent China free trade agreement, which would remove import tariffs during the next few years.
A high New Zealand dollar had compounded problems by making exports expensive and uncompetitive and lowering the costs of imports.
Overseas visitor spending had also dropped significantly as a result of a high dollar.
‘‘In addition, labour and raw material costs have increased significantly over the past two years, pushing product prices up and resulting in a consequential drop in orders.
‘‘After exploring all possible options, the directors have decided with regret and sadness that it is unsustainable to continue manufacturing in New Zealand,'' Mr Scott said.
The announcement from Tamahine came a few hours after Fisher and Paykel Appliances announced it was closing its Mosgiel plant.
Energy Minister David Parker, a list MP based in Dunedin, told the Otago Daily Times the two announcements raised serious issues for the city.
He had already proposed that, as a first step, the Dunedin City Council meet local MPs, but there needed to be a wider input from the local business community, the University of Otago and the Otago Polytechnic.
‘‘We can't solve the problems overnight and I can't pretend to stop the closure of Fisher and Paykel. But we have to make the best of the situation we face,'' he said.
National Party list MP Katherine Rich, of Dunedin, said the closure of Tamahine Knitwear's manufacturing operation was a double blow for Dunedin and marked the death of the textile industry in the city.
‘‘Dunedin has had a proud history of textile manufacturing dating back 150 years; Tamahine was our last significant manufacturer.
‘‘It is a sad day indeed,'' Mrs Rich, who had previously worked in the textile industry, said.
She offered the services of her office to Mr Scott to provide support for Tamahine staff.
Mr Scott said it was sad to see another ‘‘iconic'' New Zealand manufacturer closing its local production and paid tribute to staff.
Plans were under way to sell Tamahine's intellectual property, including brands and designs.
It was possible future product might be imported. All knitting and make-up plant was to be sold.
Most of the factory would be kept running for 11 weeks to complete orders on hand.
The traditional annual sale, that attracted more than 50,000 customers, would start earlier this year, on Anzac Day.
