Staggered by a rapid loss of business from the Enron scandal, Arthur Andersen LLP announced Monday it is laying off about 7,000 employees or more than a quarter of its U.S. work force.

The layoffs, which Andersen had warned last month were inevitable, come with the firm's reputation in tatters, its overseas network fast disintegrating and more U.S. companies replacing it daily as their auditor.

Andersen said the layoffs will take place over the next several months. Its audit practice and administrative services will bear the brunt of the personnel cuts from among its 26,000 U.S. employees.

The 89-year-old firm employs about 5,300 people at its headquarters in downtown Chicago, where heavy layoffs are expected.

"No one can believe this is happening," said Mimosa Unno, 22, who works in the audit division in Chicago.

The company said no breakout of planned cuts was yet available. Employees in Chicago were told in an e-mail to check their voice mail Monday night to learn if they should report to work Tuesday.

Andersen said cutbacks were "one of the many consequences of the events of the last month" and come despite efforts to avoid them.

"Of all the issues we have confronted recently, none compare to the actions we are now forced to take with our employees," said Larry Gorrell, managing partner of Andersen's U.S. operations. "This decision is even more painful in light of the loyalty, commitment, and the hard work that our employees have demonstrated during this difficult time."

Other, unspecified measures also are being taken to reduce expenditures, Gorrell said.

Since its audit client Enron Corp. went bankrupt in December, Andersen has been hit by a barrage of lawsuits by Enron shareholders and creditors. It also has lost dozens of blue-chip corporations as clients and nearly a dozen country affiliates overseas have bolted to rival firms.

Auditor Trak, a unit of Atlanta-based Strafford Publications Inc., said Monday that Andersen has lost 143 public audit clients this year. The company handled the audits for 2,311 public U.S. companies last year.

The exodus of clients began in February and turned into a flood after the firm was indicted March 14 on a criminal obstruction-of-justice charge for allegedly destroying Enron documents while the Houston energy trader was under federal investigation.

Andersen's lawyers have been meeting with Justice Department officials about a possible settlement involving the charge that is scheduled to go to trial May 6.

Desperately in need of cash in order to survive, Andersen also continues to talk to competitors about selling businesses and transferring many of its approximately 1,700 U.S. partners. The firm reached preliminary agreements last week with Deloitte & Touche and KPMG for the transfer of partners and sale of some regional offices.

The consulting business may be next to go. Former Federal Reserve Chairman Paul Volcker, head of a special oversight board named by Andersen in February, is working to reform Andersen and keep it alive as an audit-only firm.

But with Enron's creditors eyeing Andersen's dwindling resources, the breakup of Andersen is being challenged. A group of insurers is seeking a court injunction in Houston to block Andersen from selling its assets in the United States and abroad. A hearing scheduled for Monday was postponed until April 17.

Until the recent defections of overseas partners, Andersen Worldwide — the legal umbrella for Andersen's businesses including U.S. arm Arthur Andersen LLP — employed 85,000 people at 84 member firms.