Altadis, Western Europe’s third largest cigarette manufacturer, will shed 114 of its 1,400 employees in Spain, mostly through early retirement, and the closure of a factory in the southern city of Cadiz, the company said in a statement.
The group's cigarette sales in Spain have slumped 40 percent in the past four months, Altadis said.
Spain's economy, the fourth largest in the eurozone, has been contracting since mid-2011 and retail sales fell 2.6 percent in April — the 34th straight monthly decline.
Altadis,an offshoot of British-based Imperial Tobacco, blamed "regulatory" pressure in Spain, where smoking has been banned in cafes and restaurants since January 1, 2011.
At the same time, the government has forced prices to rise.
The number of passive smokers in Spain has dropped by 70 percent since the ban was introduced but one in four Spaniards still smokes on a daily basis, according to a study by pharmaceutical company Pfizer.
Altadis also cited "a considerable increase in illegal sales, provoked largely by the situation of economic crisis".
Contraband cigarette sales accounted for 12 percent of the market in Spain, it said. On Monday, for example, Spanish police seized 520,000 packets of contraband cigarettes and arrested 17 people.
Altadis, the number one cigarette company in Spain, was taken over by Imperial Tobacco in January 2008. It was born in 1999 from the merger of France's Seita and Spanish firm Tabacalera.