"These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength," company Chief Executive Stephen Elop said in a statement.
Nokia was earlier this year bumped from the world's biggest mobile phone maker spot it had held for 14 years.
It also announced a massive management reshuffle.
"In addition to the already achieved annualised run rate saving of approximately €700 million (US$874 million) at the end of the first quarter of 2012, the company targets to implement approximately 1.6 billion of additional cost reductions by the end of 2013," it said in a statement.
Nokia said it would continue to "closely assess the future of certain non-core assets," and confirmed reports that it would sell its luxury mobile phone business Vertu to private equity firm EQT VI.
Vertu was established in 1998, on a concept of haute-couture mobile telephony.
Its phones, which are typically adorned with diamonds and other gems, run on the Symbian Operating System (OS) with prices starting at around €4,000 (US$3,181) for the Constellation model.
Nokia has since early 2011 been restructuring and phasing out its Symbian smartphones in favour of a partnership with Microsoft.
That alliance has produced a first line of Lumia smartphones.
Nokia is depending heavily on the new phones to help it survive in a rapidly changing landscape with RIM's Blackberry, Apple's iPhone and handsets running Google's Android platform take growing bites out of its market share.