"On a continuing operations basis, the group incurred a loss after taxation of 10.4 billion euros in 2010, compared with a loss after taxation of 2.3 billion euros in 2009," AIB said in a statement.
"It is expected that a reduction of over 2,000 staff will take place on a phased basis over 2011 and 2012," added the lender which is more than 90-per cent owned by the Irish government. It currently has about 14,500 staff.
The huge losses and job cuts were expected as Ireland's banking sector has been left battered by the global financial crisis, which in turn has led to a massive international bailout of the eurozone nation.
"2010 was an extremely difficult period for AIB and all its stakeholders," the bank said in its results statement.
"It was a year that culminated in the announcement that the Irish government was to take a majority stake in AIB. There were significant levels of credit losses, as we matched the continued downturn in the economy, in addition to the loss on transfer of loans to NAMA."
Ireland's former government created the National Asset Management Agency (NAMA) in 2009 to purchase high-risk or toxic assets at a major discount from debt-ridden financial institutions.
After years of reckless lending the Irish banking sector was hammered by the international financial crisis and the collapse of a domestic property bubble that saw house prices plummet more than 50 percent.
In late 2010, Ireland had to seek an 85-billion-euro rescue package from the EU and the IMF as massive debt and deficit problems left the country on the verge of collapse.
And last month, Ireland's central bank ordered a drastic overhaul of the eurozone nation's stricken banking sector as the cost of bailing out its lenders was set to top 70 billion euros.
Under the changes, it decided to merge AIB and another nationalised lender Educational Building Society.
Minister for Public Expenditure Brendan Howlin said AIB's announcement of job cuts was a "bleak day" for bank employees but acknowledged there had to be "a considerable downsizing of the banking sector" in Ireland.
The Central Bank of Ireland recently said that four lenders needed to raise an extra 24 billion euros after it carried out vital stress tests on their ability to withstand another financial crisis.
The additional capital is being covered by the 35 billion euros provided for the banks as part of Ireland's huge debt rescue agreed in November with the European Union and the International Monetary Fund.
Earlier this year, Brian Cowen's centrist Fianna Fail administration was ousted from power as voters vented their anger over the bailout.
Enda Kenny became Ireland's prime minister after a dramatic general election, and now heads a coalition government of his centre-right Fine Gael party and centre-left Labour.