Online search and advertising giant Google admits it has taken a big hit from its $1 billion (£509.6 million) investment in Time Warner's AOL.

Google bought the 5% stake in 2006. "We believe our investment in AOL may be impaired," Google said in its latest quarterly financial filing with regulators.

In return for the investment, Google secured renewal of its search advertising deal with AOL, its largest ad partner. That deal was a groundbreaking move for the company and has fuelled its big ad revenue boom in recent years.

Time Warner said this week it was preparing AOL for a long-anticipated spin off so that it can refocus on its core media businesses.

The company has struggled under the burden of AOL since the 2001 mega-merger, which was hailed at the time as the "Deal of the Century" but quickly went sour.

At current market valuations, Google stands to lose an estimated $500 million if AOL is spun off.

AOL had a $20 billion valuation at the time of Google's $1 billion investment, but that has been roughly halved, by some estimates, after it shed nearly half of its total subscribers.

More than eight million account cancellations has left it with 9.3 million paying members.

Time Warner has been in informal talks for more than a year with potential partners ranging from Yahoo to News Corp about possible deals involving AOL.