Indian online gaming app Mobile Premier League (MPL) will sack about 60% of its local workforce as part of a major downsizing after the government banned paid games, said a company source with knowledge of the plan, in the first such reaction to a new law.

Prime Minister Narendra Modi's government this month banned online paid games, citing financial and addiction risks especially among youth, leading to a shutdown of many gaming apps offering paid fantasy cricket, rummy and poker games.

The law shocked an Indian industry backed by venture capital firms such as Tiger Global and Peak XV Partners that was set to be worth $3.6 billion by 2029. MPL and rival Dream11 became popular in recent years by offering paid fantasy cricket games that allow winners to receive financial prizes.

The industry says the games rely on skill and therefore are not gambling, which was already highly restricted in India.

As MPL focuses on free-to-play games and bolsters its business in the U.S. market, the company source said on Sunday it would let go of roughly 300 of its 500 India staff in divisions like marketing, finance, operations, engineering and legal.

In an internal staff email sent on Sunday that was seen by Reuters, MPL CEO Sai Srinivas wrote "with a heavy heart we have decided that we will be downsizing our India Team significantly." He did not specify the number of job cuts in the email.

"We are committed to providing those impacted with every possible support during this transition period ... India accounted for 50% of M-League's revenues and this change would mean that we would no longer be making any revenue from India in the near future," he added.

MPL declined to comment to Reuters' queries.

Backed by Peak XV Partners, formerly known as Sequoia Capital India, MPL was valued at $2.3 billion in 2021, Pitchbook data shows. It also has free-to-play offerings in Europe and paid games in United States and Brazil.

The company source said that MPL's India revenue last year was roughly $100 million. MPL's rival, Dream11, valued at $8 billion, has also discontinued its fantasy cricket offering. Many other apps offering paid poker and rummy card games have also stopped.

In a first, Indian gaming company A23 challenged the government's ban last week, but MPL and Dream11 have decided not to pursue legal challenges.