The firm said it was working with client Scotia Gas Networks to minimise the impact on its staff in Aberdeen, Dundee and Falkirk.
Under the new arrangement, May Gurney will retain some mains replacement and all new connections work in the north-east of Scotland until 2014.
A spokesman said: “While May Gurney will continue to work with SGN in a strategic partnership, this decision will result in a significant reduction in the work we undertake for the group in Scotland and, also, our staffing requirements going forward.
“As a result, we have entered into consultations with our staff and anticipate that up to 250 people could be affected by this development.”
The contractor said that it was also in talks with another client Scottish Water in the hope that some staff could be retrained and redeployed on contracts.
A few weeks ago May Gurney chief executive Phllip Fellowes-Prynne revealed he was leaving the firm after issuing a profit warning.
The company in part blamed the loss of a contract to renew and maintain gas mains for Scotia Gas Networks, which is a subsidiary of SSE.