The company said an additional 500 people will be laid off from AOL's enterprise software alliance with Sun Microsystems. AOL employs 16,000 people.
AOL Time Warner will take a US$100 million to US$125 million charge in the third quarter for costs relating to the restructuring.
The restructuring, which was widely expected, marks an ongoing attempt by AOL Time Warner to streamline its operations in the face of a souring economy. The company has set aggressive financial goals for the year of US$40 billion in revenue and US$10 billion in earnings before interest, taxation, depreciation and amortisation (EBITDA).
Last quarter, the company missed its revenue estimates, leading some to question whether AOL Time Warner would make its financial goals.
Analysts applauded the recent decision to cut staff at its Internet unit.
"It's a smart move," John Corcoran, Internet analyst at CIBC World Markets, said of the layoffs. "What they're doing is tightening the belt in a challenging macroeconomic environment."
Corcoran said that since the company generates 25 percent of its revenue from advertising, it is struggling to increase that revenue each quarter. "America Online and cable are really pulling most of the weight here," Corcoran said. "This is not as though this thing is broken and they're trying to resurrect it."
The announcement marks the second time AOL Time Warner has cut staff in its Internet unit since its merger. Shortly after that deal closed, the company slashed about 2400 jobs. Divisions affected in that round included America Online, CNN, Time, Warner Bros Online, Warner Music Group and New Line Cinema.
The latest layoffs are accompanied by an overall executive restructuring within the AOL division.
The company added that it plans to share more resources, such as technology, business affairs, marketing and communications, across many divisions to further cut costs.
