The struggling internet giant said in a blog post that the feature was not "adding enough value" for its users to justify prolonged support.
Pingbox and Windows Live Messenger functionality will also be discontinued from December 14 and replaced with new features. Further changes to the service will be implemented at the end of January.
"Sometimes… we have to make tough decisions," Yahoo said in a blog post. "This helps us spend more energy on creating experiences that make Yahoo the most fun way to spend your time."
Yahoo's chat room service has come under fire in the past, with some advertisers withdrawing support for the service amid reports of under-age-themed sex chat rooms on the platform in 2005.
Yahoo is undergoing a transformation after shaking up its management setup in a bid to shake off its recent financial woes and claw back ground on the likes of Google.
Recently appointed CEO Marissa Mayer has already brought in wholesale changes to the firm, poached Google executive Henrique De Castro to take up the vacant post of chief operating officer and dissolving its South Korean business.
The firm will unveil a touch-screen-optimised overhaul to its website within the coming months.