AOL CEO Randy Falco told employees in a company memo that the cuts would be staggered over the next several quarters and would affect mainly US employees.
The memo also said plans to eliminate merit-pay raises in 2009 to help minimise the layoffs.
Falco said: "The deepening economic recession has affected every corner of the economy, including our own. Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars."
The memo said that AOL was in year two of its three-year plan to shift from an internet access company to an advertising-focused firm.
Analysts predict that AOL will suffer a 12% decline in Q4 advertising sales, which will continue to fall over 2009.
The new trimmed-down AOL has also fuelled speculation that the company could now look more appealing to possible acquisition partners, including Yahoo!
Earlier this month, Yahoo! chairman Roy Bostock met with Time Warner CEO Jeffrey Bewkes and Microsoft CEO Steve Ballmer at Time Warner's New York headquarters, although the details of the meeting were not revealed.
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