Yahoo is denying reports that the company is in the midst of a 20% reduction of its workforce.

Rumours began swirling online late on Thursday afternoon when high tech blog TechCrunch, citing unnamed sources, reported that the online company is preparing to lay off 20% of its entire staff of about 14,000.

The company is not denying there are layoffs in the works, but is trying to temper the report. "Yahoo is always evaluating expenses to align with the company's financial goals," Yahoo representative Dana Lengkeek said. "However, a 20% reduction in Yahoo's workforce across the board is misleading and inaccurate."

Speculation about layoffs at Yahoo comes just one day after reports surfaced that another Internet icon, Google, was getting ready to hand out 10% pay raises across the board at the beginning of the new year.

Once an Internet giant and pioneer, Yahoo has slipped into a distant second place to Google in the hot search market, where Yahoo recently tossed out its own search engine and formalised a deal with Microsoft to use Bing search for all of Yahoo's sites.

Last month, the Internet was abuzz with speculation that AOL was interested in buying Yahoo. Citing unnamed sources, the Wall Street Journal reported that AOL's plan to buy Yahoo was so preliminary that it hadn't even included entered discussions with Yahoo.

"Putting AOL and Yahoo together is like tying two rocks together to make one of them float," Gabriel Consulting Group analyst Dan Olds has said previously of a potential Yahoo-AOL deal.