Google bought the stake for $1bn in 2006, although in January it estimated the investment had sunk to $274m.
The price at which Time Warner bought back the stake values AOL at less than $5.66bn, excluding a cash distribution of unspecified size that was included in the total.
The deal paves the way for Time Warner to formally spin off AOL into a separate company.
In May, Time Warner said it plans to proceed with "the complete legal and structural separation of AOL from Time Warner". Following the proposed transaction, AOL would be an independent, publicly traded company.
An AOL spin-off had been mooted for some time, as Time Warner looks to reshape its business. In recent months, Time Warner has spun off its US cable-TV provider into a separate company.
The separation of AOL and Time Warner will unwind their 2001 merger. The deal was initially hailed as the creation of a new media powerhouse.
AOL's global ad revenue fell by a fifth year on year in the first quarter of 2009, as parent Time Warner blamed falls in display and search ad spend on its own websites.
Time Warner said AOL revenue overall fell 23%, to $867m in Q1, due to a 27% decline in subscription revenue and a 20% fall in ad revenue.
_1.jpg)
.jpg)