As a result of heavy declines in digital ad spending, AOL plans to lay off approximately 700 staffers. The cuts will affect roughly 10 per cent of the Time Warner unit's global work force, and will be mostly complete by the end of March.

According to a memo circulated to employees the internet unit will also eliminate merit-pay increases this year to help minimise layoffs.

"Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars," said AOL Chief Executive Randy.

"As a result, we will be reviewing our entire organization to further align resources and expenses against the real revenue opportunities in this difficult market."

Many of the cuts will occur in units that don't directly support AOL's three core businesses: Platform A, its ad network unit; MediaGlow, consisting of AOL and other in-house sites; and People Networks, its social media cluster containing Bebo, AIM, Goowy and other properties.

AOL products that do not reside within those three core areas, and are therefore potential cost-cutting targets, include video search platform Truveo and MapQuest.

Time Warner has been in deal talks with Yahoo and Microsoft Corp to find a way to combine AOL's advertising business with either or both of those companies.

Most of the job cuts will be made in the United States while the rest will be made abroad over the next several quarters.

Time Warner said earlier this month that AOL had weaker-than-expected advertising sales in the fourth quarter, forcing a profit warning by the media conglomerate, which also owns cable news network CNN and Warner Bros movie studio.