Yahoo is cutting 15% of its workforce as the company pursues an “aggressive strategic plan” to return to profitability.
The job cuts will reduce the number of its employees to about 9,000 by the end of 2016.
The announcement came as Yahoo reported a $4.3bn (£3bn) loss for the year.
In a statement, chief executive Marissa Mayer said: “This is a strong plan calling for bold shifts in products and in resources.”
She added that it would “dramatically brighten our future and improve our competitiveness, and attractiveness to users, advertisers, and partners.”
The head-count reduction is the latest part of Ms Mayer’s attempt to turn around the troubled internet company, which is struggling to compete against the likes of Facebook and Google.
In December, the company announced it was reversing a plan to sell its stake in the Chinese e-commerce site Alibaba, and would instead look to spin off its core internet business.
Ms Mayer was forced to change course on the Alibaba sale following pressure from several activist investors.
The focus on cutting costs and raising profits is being seen as the latest sign that the company is becoming more serious about selling its core internet business.
But some analysts are sceptical.
“They can slim down to improve profitability, but they are in an industry that is growing and they’re not,” said Martin Pyykkonen, managing director at Rosenblatt Securities.
“If the core business was really a valuable asset someone would have come and tried to buy it already,” he added.
As well as shedding much of its workforce, Yahoo plans to sell off some of its product lines – such as Yahoo TV and Yahoo Games – so that it can focus on its search business, email and Tumblr blogging site.
It is also closing offices in Dubai, Mexico City, Buenos Aires, Madrid, and Milan.
That should lead to “modest and accelerating growth in 2017 and 2018,” the company said.
Yahoo has estimated the cutting back of its product line alone could generate $1bn.
Ms Mayer has been under pressure from investors to step down as chief executive.
“We would like to see a higher stock price, and we think Marissa and her current management team have become a hindrance to that,” said Eric Jackson, managing director of SpringOwl.
Yahoo’s shares fell 1.4% in after-hours trading.