Shenzhen-based Tencent, which owns the popular messaging app WeChat, will hold about a quarter of a new subsidiary.
The video game regulator had drafted rules which would have limited the time and money spent gaming.
The company is the latest in gaming to cut jobs following Amazon, ByteDance and Epic Games.
The Chinese firm entered the sector in 2019 to compete with Tencent but failed to grab market share.
After the fine, authorities signalled an end to a crackdown on tech firms.
Investors fear the world's second largest economy will be held back by its tough Covid restrictions.
The WeChat owner is also feeling the effects of a regulatory clampdown on gaming.
Alibaba and Tiktok-owner ByteDance are among firms that have shared information with regulators.
The popular combat and survival game is a rebranded avatar of PUBG which was banned in India in 2020.
