Thousands of Royal Mail workers went on strike at noon yesterday in the first of two 48-hour walkouts in an escalated protest over pay and fears of job cuts.

After last-minute talks between Royal Mail managers and the Communication Workers Union (CWU) failed to reach a deal, the walkout of up to 130,000 postal workers commenced.

Members of the Communication Workers Union (CWU) mounted picket lines outside mail centres. A second two-day strike by CWU members, including more than 10,000 in Scotland, is scheduled to begin at 3am on Monday.

Talks continued yesterday in an attempt to resolve the dispute but there was no sign of a breakthrough and the CWU warned the strikes will not be called off until an agreement is reached.

Companies have been warned the industrial action means there will be no deliveries until next Thursday, and it is estimated the row will cost industry millions of pounds.

The government refused to become involved in the dispute, making it clear it should be resolved by the union and the management.

However, officials from the Ministry of Justice, responsible for electoral administration, were in talks with Royal Mail about the dispute as concerns grow about postal votes in any impending General Election.

A spokesman for the Department for Business, Enterprise & Regulatory Reform said: "Strike action can only damage Royal Mail's business and the postal services market as a whole. The dispute is for the Royal Mail management and the unions to resolve.

"Royal Mail needs to modernise to compete in a liberalised postal services market. Management and unions must work together to achieve this and to meet the challenges of a liberalised market."

Alan Alexander, chairman of Postwatch Scotland, warned the strike will further dent public confidence in the postal system.

"In the longer term, the flight of business from Royal Mail will make it more difficult for them to be economic, efficient and effective in the delivery of the universal service and we need that for areas like Scotland with very remote areas to which other mail operators do not operate."

Royal Mail said it had consistently sought a resolution to the dispute since March.

"We apologise to our customers for any inconvenience that CWU strike action causes," a spokesman said.

CWU general secretary Billy Hayes said talks were continuing but complained that Royal Mail chairman Allan Leighton and chief executive Adam Crozier were "nowhere to be seen".

He said the government needed to become involved in finding a resolution to the dispute.

A rolling programme of strikes will start on October 15 and will continue every week until the dispute is resolved, the union has warned.

Postal workers have staged four national strikes and other forms of industrial action since the summer after rejecting a 2.5% pay offer and saying they are worried that modernisation plans will lead to the loss of 40,000.

The latest disruption is expected to be the worst since the dispute began. It has already cost taxpayers at least £2.6m to date and is expected to cost millions more.

The National Federation of SubPostmasters warned that the dispute was in danger of spiralling out of control.