Federated Learning (FL) provides a promising solution for preserving privacy in learning shared models on distributed devices without sharing local data on a central server. However, most existing work shows that FL incurs high communication costs. To address this challenge, we propose a clustering-based federated solution, entitled Federated Learning via Clustering Optimization (FedCO), which optimizes model aggregation and reduces communication costs. In order to reduce the communication costs, we first divide the participating workers into groups based on the similarity of their model parameters and then select only one representative, the best performing worker, from each group to communicate with the central server. Then, in each successive round, we apply the Silhouette validation technique to check whether each representative is still made tight with its current cluster. If not, the representative is either moved into a more appropriate cluster or forms a cluster singleton. Finally, we use split optimization to update and improve the whole clustering solution. The updated clustering is used to select new cluster representatives. In that way, the proposed FedCO approach updates clusters by repeatedly evaluating and splitting clusters if doing so is necessary to improve the workers’ partitioning. The potential of the proposed method is demonstrated on publicly available datasets and LEAF datasets under the IID and Non-IID data distribution settings. The experimental results indicate that our proposed FedCO approach is superior to the state-of-the-art FL approaches, i.e., FedAvg, FedProx, and CMFL, in reducing communication costs and achieving a better accuracy in both the IID and Non-IID cases. © 2022 by the authors.