The Health Department will axe jobs through voluntary redundancies in a move unions warn could shed 250 positions.
In an email to staff, department secretary Martin Bowles said it would seek expressions of interest for voluntary redundancies in a bid for "affordable" staff numbers amid federal budgetary constraints.
The CPSU said the redundancies would shed five per cent of the agency's workforce.
Deputy secretary Beth Vincent-Pietsch warned the cuts risked eroding service standards at the department.
"We have serious concerns about the potential impact of losing that capacity and experience on the agency's essential work," she said.
"Australians can't afford for the critical public role played by Health to be at risk or service standards to erode as they have in other agencies like Centrelink, Medicare and Child Support, [and] the Tax Office.
"We have begun talks with the department and will continue to closely monitor what impact this reduction in staffing will have on the services provided by Health, and ensuring affected workers are properly supported."
However Ms Vincent-Pietsch said it was encouraging that the department appeared committed to a transparent process of voluntary redundancies.
A department spokeswoman said it was using several measures including recruitment restrictions and voluntary redundancies to reduce overall staffing numbers to an "affordable level" for 2017-18.
The funding allocated to the Health Department for that year can support a workforce of approximately 4,330 full time equivalent staff.
"We are not able to predict what level of interest there will be in VRs," she said.
Mr Bowles' announcement came after he flagged last year that budget and staffing issues would be the department's largest challenges in 2017.
He told staff the redundancy program occurred as part of the federal government's drive to find budget savings.
The email warned that given federal budgetary pressures, the department faced further cuts to its staffing cap.
"It is essential that we work together to find the best way forward for us as an organisation to effect the changes we need to see in the community.
"As well as driving reform strategically and effectively, the government expects us to contribute to ensuring efficiency in the operations of the Australian Public Service as part of its commitment to budget repair.
"The government's program of efficiency dividends looks set to continue. Given this, I expect our budget and staffing cap will further reduce over coming years.
"At the same time I am conscious we are working in a high-demand environment, and that we will continue to be expected to deliver complex and important initiatives to a high standard."
Ms Vincent-Pietsch said Wednesday's announcement was a surprise to staff and the CPSU.
More worrying for department staff was a planned restructure at the Health Provider Compliance Division, which would lose 40 from 368 positions, she said.
This would affect offices in Canberra, Hobart, Melbourne, Parramatta, Adelaide, Brisbane and Perth.
Data analytics will play a larger role in the division after the restructure, and staff were unsure if their positions would continue given that change.
CPSU members were concerned that flaws could arise from an over reliance on data analysis.
Ms Vincent-Pietsch said the department had begun consulting staff about the restructure, and was "not handling the process badly".
"It's just a concern that there are a lot of jobs to go."
The CPSU will meet with the Health Department on Friday to discuss the job cuts.