AOL has announced plans to sell its ICQ chat service to Russian firm Digital Sky Technologies (DST) for $187.5m (£123m).

The sale represents a loss of around $220m (£144m) for AOL after buying the service for $407m (£267m) in 1998 from Israeli company Mirabilis. ICQ had struggled to compete with rival products from Yahoo and Google.

AOL chief executive Tim Armstrong admitted that the company is selling the division as part of a revamp of its business, and believed that ICQ would prove successful for DST.

“As AOL continues its turnaround effort, we are fortunate to find a great home for ICQ with DST. ICQ has been a revolutionary company on the internet, and we wish them great success as a part of DST,” he said.

The sale provides yet another indication of AOL’s decline. The company announced the sale or closure of Bebo earlier this month, just two years after buying the social networking site for $850m (£557m).

DST said the move to buy ICQ will boost its presence in markets like Russia, Germany, the Czech Republic and Israel.

“The acquisition of ICQ is a strategic enhancement of our business in Russia and eastern Europe,” said DST chief executive Yuri Milner.

“ICQ’s brand name and sizeable customer base represent an attractive opportunity to strengthen our position in the region.”

DST has shares in internet businesses around the world, including a 1.96 per cent stake in Facebook.