Hundreds of staff and students have protested against the potential loss of as many as 500 jobs at London Metropolitan University.

The rally took place as the university's governors met last week to discuss the Higher Education Funding Council for England's plan to claw back millions of pounds in funding that London Met has been overpaid owing to problems with the university's data on student dropouts.

Jeremy Corbyn, Labour MP for Islington North, has launched an early day motion arguing that the scale of cuts throws the future viability of the university into doubt and undermines efforts to widen participation.

The motion, which has been signed by 13 MPs to date, urges the university to reverse staff cuts and commit to "a thorough exploration of all potential non-staff savings through meaningful consultation with staff and campus unions".

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As Times Higher Education reported last month, the university's University and College Union branch said that London Met could be asked to pay back as much as ?50 million.

Hefce has confirmed that it is looking to retrieve money the university has been overpaid in previous years in addition to imposing a ?15 million cut in the university's grant for 2008-09.

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Almost 2,000 people have signed a petition calling on the Government and Hefce to avert the threatened redundancies, and nearly 400 have joined a campaign on the social networking site Facebook called "Save London Metropolitan University".

George Galloway, MP for Bethnal Green and Bow, sent a message of solidarity to protesters and said he was "angered and shocked" by the cuts, which would be "devastating".

"The Government boasts of its 'fiscal stimulus' and 'counter-cyclical' actions in the face of the deepening economic recession. However late, limited and hobbled by deference to the banks and big business those measures are, the principle of state action to stave off economic collapse is sound. Why then for banks and not for jobs?" he asked.

Board papers show that the possibility of Hefce holding back money was being discussed by the university's governors in October 2007.

Minutes of a governors' meeting in December 2007 report that governors were "shocked" and report that they "did not believe the university had behaved outside the norm when compared with similar institutions".

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The document says: "The issue appeared to be one of acknowledging and agreeing what had been considered and accepted in the past."

Minutes of a meeting on 21 May last year reveal that the university had been placed by Hefce in its "at higher risk" category.

The most recent minutes, from 19 November, confirm that 330 full-time equivalent posts are at risk, which the university's UCU branch said could mean up to 500 posts.

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The board papers say that the university has opted for "continuation with cost savings and transformational change" but that another option on the table had been "merger and closure or ... the withdrawal of public funding".

According to the documents, the university's external auditors "had confirmed that it had been eminently reasonable for the university to assume that its interpretation of the funding council rules was acceptable, given the advice sought and obtained from Hefce and the outcome of the 2004 and 2005 funding council audits".

A spokesman for Hefce said the reduction in funding for 2008-09 had been capped at ?15 million, which meant "?6 million of funding reductions that would have been due have been mitigated".

"The university also made incorrect data returns for 2005-06, 2006-07 and 2007-08 ... The Hefce board is looking to recover this funding, and a repayment schedule will be negotiated with the university," the spokesman said.

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rebecca.attwood@tsleducation.com