The office closure means the paper will no longer have an editor of its own but will instead sell advertising to hard-pressed Lancaster businesses from outside the area.
It will employ just one reporter, based at home - its only investment in the city.
The newspaper's editor, Phil Fleming will take over as the group editor of the Citizen group, also covering papers in Chorley, Blackpool and Preston and will be based in Blackburn.
North West media site How Do reports that in addition to local cuts both Eric Henshaw, managing director of Newsquest Bolton, and Derek King, the publisher for the Newsquest Merseyside operation, have been made redundant.
Henshaw has been with Newsquest for 30 years, managing Newsquest Warrington for nine years, Interactive Media in London for four and steering the Bolton outfit for the last seven.We gather more redundancies may be to come across the group, which closed its Preston office earlier this year but still produces a Preston Citizen newspaper. Last month, five editorial staff were made redundant across the Bolton, Bury and Leigh offices.
Newsquest, which operates 300 newspaper titles in the UK including the Citizen group, The Argus in Brighton and Scotland's Sunday Herald, has seen advertising revenue tumble by 23.6% year on year in Q3.
Brand Republic recently reported that Newsquest owner Gannett, the US-based media group behind USA Today, has seen classified ad revenue dwon 29.1% year on year. The company did not, however, reveal the absolute amount of ad revenues.
It seems odd that in the week that the Lancaster Guardian, owned by Johnson Press, is about to go through a major revamp, the 'economic turmoil' should bring such disaster to a paper that was so incredibly well-read a few years ago. It's hard to believe it has declined so sharply.
Perhaps poor management is to blame? Earlier this month, HoldtheFrontPage.co.uk, a website for journalists and journalism students, reported that an e-mail championing the "deep sacrifices" being made by Craig Dubow, chairman and president of Newsquest's American parent company Gannett, caused anger among employees.
The email reported Dubow had taken a $200,000 (17pc) pay cut from 1 November, continuing through 2009, reducing his salary to around $1million per annum. Barely enough to survive on, then.
A senior reporter with Newsquest told HoldtheFrontPage: "It is heartwarming to know that someone so senior as Mr Dubow has taken a pay cut for the company, but we're all worried about whether he will be able to survive on his salary of more than $800,000 a year.
"To put out minds at rest, we have decided to hold a whip-round and shall certainly be nominating him for employee of the year.
"Joking aside," the reporter continued, "it would take most young senior reporters more than 20 years to earn what he earns in a year.
"For the Newsquest chiefs to think sending this email would be good for morale shows how out of touch they really are.
"This newsroom has already had redundancies and is currently facing more. This email has fuelled anger."The National Union of Journalists has responded angrily to cuts elsewhere in the country made by Newsquest.
"It is clear that they are not interested in their employees' wellbeing, but only interested in saving money and closing local offices," NUJ assistant organiser Don Mackglew after it was announced that 12 editorial positions go across Newsquest papers in north and east London.