The "big six" energy firm has been plagued by customer complaints over billing and in December was fined, by the energy industry's regulator, a record £26m for those problems.
Npower lost €137m (£106m) last year, compared with €227m profit in 2014.
Its parent company, Germany's RWE, warned that billing issues at Npower would continue throughout 2016.
Npower said the job losses would be among both its directly employed staff and contractors.
It currently employs 11,500 people in the UK, of which 6,668 are full time posts.
Npower described its annual results as "extremely disappointing" and announced the start of a two-year programme to "simplify its business processes".
"They [the results] show a business that tried to do too much, too soon while not focusing enough on the fundamentals in a constantly changing market. This led to over complicated processes and procedures resulting in unhappy customers, too many complaints and extra costs to put things right, " Paul Coffey, chief executive of Npower said.
But RWE also blamed government schemes to make homes more energy efficient for the "weakening our market share".
"Under Energy Company Obligation major UK energy firms such as Npower are obliged to finance measures to increase the energy efficiency of households and are therefore at a cost disadvantage compared to smaller providers, which do not have such obligations", the company said.
RWE announced a €637m (£493m) annual group loss, compared with a profit of €2.2bn a year earlier.
Npower's main plants in the UK are in Pembroke and Aberthaw in Wales and Staythorpe in Nottinghamshire.
Along with other big six suppliers, Npower announced a 5.2% price cut to its standard domestic gas tariff that would affect 1.2 million customers.