Critics say the move will undermine US ability to defend and promote US interests abroad.
The layoffs, which affect 1107 civil service and 246 foreign service officers based in the United States, came on Friday at a time when Washington is grappling with multiple crises on the world stage: Russia's war in Ukraine, the almost two-year-long Gaza conflict, and the Middle East on edge due to high tension between Israel and Iran.
"The Department is streamlining domestic operations to focus on diplomatic priorities," an internal State Department notice that was sent to the workforce said.
"Headcount reductions have been carefully tailored to affect non-core functions, duplicative or redundant offices, and offices where considerable efficiencies may be found."
The total reduction in the workforce will be nearly 3000, including the voluntary departures, according to the notice and a senior State Department official, out of the 18,000 employees based in the US.
The move is the first step of a restructuring that  President Donald Trump has sought to ensure US foreign policy is aligned with his "America First" agenda. Former diplomats and critics say the firing of foreign service officers risks America's ability to counter the growing assertiveness from adversaries such as China and Russia.
"President Trump and Secretary of State Rubio are once again making America less safe and less secure," Democratic senator Tim Kaine from Virginia said in a statement.
"This is one of the most ridiculous decisions that could possibly be made at a time when China is increasing its diplomatic footprint around the world and establishing an overseas network of military and transportation bases, Russia is continuing its years-long brutal assault of a sovereign country, and the Middle East is careening from crisis to crisis."
Dozens of State Department employees crowded the lobby of the agency's headquarters in Washington holding an impromptu "clap-out" for their colleagues who have been fired. Dozens of people were crying, as they carried their belongings in boxes and hugged and bid farewell to friends and fellow workers.
Many members of a State Department office overseeing the US resettlement of Afghans who worked for the US government during the 20-year war have also been terminated as part of the overhaul.
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