The changes mark a major strategy shift for Handelsbanken which has long prized its branch network and in 2016 even ousted a previous CEO for entertaining plans to slim down the bank.
The closures also highlight a shift away from cash and traditional branch banking that is forcing change across the industry. Sweden is already the world's least cash dependent economy.
"We have reached a tipping point where we see that our customers are opting more to meet us in a digital space or other forums," CEO Carina Akerstrom said on Wednesday.
The cuts and closures would lower costs by about 1.7 billion Swedish crowns ($194 million) compared with 2019, to around 20 billion crowns by the end of 2022, the bank said.
Handelsbanken will invest 1 billion crowns in its IT and digital services over the next two years.
The bank's shares were up about 2.4% by 0813 GMT.
Analysts were however critical of the restructuring.
"I fear that the big changes due on the branch network will lead to a very volatile, even painful, couple of years for Handelsbanken," Andreas Hakansson, senior analyst at Danske Bank, said.
"When all the cost savings and revenue losses are delivered, it's a very small benefit that you get out of this restructuring, which is a little disappointing."
The bank said it would reduce its branch network to about 200 from 380 and set aside around 1.5 billion crowns in the fourth quarter to pay for the cuts.
The cuts would see the bank's income "contracting by around SEK 1 billion", but it did not specify in what business areas.
Handelsbanken has prioritised keeping its large, local network, where branch managers have considerable decision-making autonomy, over investment in digital banking. A strong local presence has been credited with keeping the bank's loan losses among the lowest in Europe.
"Branches remain the backbone of our business model," CEO Akerstrom said, adding that the changes would not make Handelsbanken riskier.
Anna Hjelmberg, the Finance Union's representative at Handelsbanken, said: "It is a very sad decision. We will do everything to ensure that every individual, employee, member is treated with a lot of respect."
($1 = 8.7804 Swedish crowns)
(Additional reporting by Helena Soderpalm and Johan Ahlander in Stockholm, editing by Anna Ringstrom, Jason Neely and Jane Merriman.)
By Colm Fulton