The move marks a retreat from the competitive video gaming sector.
Nuverse, a video game publisher that is a subsidiary of Beijing-based ByteDance, is currently conducting a round of layoffs that will affect "several hundred people", said the source.
"We regularly review our businesses and make adjustments to center on long-term strategic growth areas. Following a recent review, we've made the difficult decision to restructure our gaming business," a ByteDance spokesperson said in a statement.
The decision to retreat from the video game sector comes despite major investments by ByteDance into Nuverse over the past several years in a bid to catch up with industry leader Tencent.
AFP's source said that while the division would see significant downsizing, the current cuts did not represent a complete closure of its gaming business.
The staff reductions are intended to help ByteDance concentrate on core businesses and streamline the organisation, said the source, adding that games not yet launched are set to be shut down in December.
Games with active players, including the popular mobile action title Crystal of Atlan, will continue operations as the firm looks to divest assets, said the source.
Nuverse, launched in 2019 in an attempt to challenge Tencent's supremacy, has failed to achieve the commercial success ByteDance had hoped for.
ByteDance competitor Tencent -- also a China-based tech giant -- is the biggest player in terms of revenue in the global video game sector, dominating the Asian market and investing in game studios across the world.
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