LyondellBasell, the world's third-largest petrochemical company whose U.S. operations are under bankruptcy protection, said on Wednesday it would cut 3,000 jobs, or 17 percent of its workers, and reduce expenses by an additional $500 million by 2010.

LyondellBasell Industries, based in Rotterdam, the Netherlands, said it planned to reduce its contract workers by 30 percent, or 2,000, and close 10 plants and 20 offices.

The company took on billions of dollars in debt obligations a year ago when billionaire Len Blavatnik led a $12.7 billion leveraged buyout of U.S. firm Lyondell by Basell of the Netherlands.

A massive debt load and declining demand for its products prompted Lyondell to seek protection from its creditors in January.

This cost reduction plan is a key part of our effort to offset the current sales volume and margin weakness, Alan Bigman, LyondellBasell's chief financial officer, said in a statement.

LyondellBasell's original merger plan targeted a fixed-cost reduction of about $200 million, the company said in a press statement.

Market conditions continue to be extremely challenging, Bigman said.

The privately held company, which operates a massive refining and processing plant in Houston, has suffered from a steep decline in demand for chemicals as industries such as autos, housing and electronics weakened.

In a bid to cope with the downturn, LyondellBasell started shuttering plants and cutting jobs late last year, and the process has accelerated, a spokeswoman said.

(Reporting by Anna Driver in Houston; editing by Gunna Dickson)