LiAlyCo1-yO2 powders were synthesized by the sol-gel process using acrylic acid as a chelating agent. The X-ray diffraction pattern for LiAl0.25Co0.75O2 powders calcined at 600degreesC or above shows that these materials have a well-developed layered HT-LiCoO2 structure. The capacity fading of the gel-derived LiAl0.25Co0.75O2 samples greatly decreased at lower temperatures. Galvanostatic cycling for the gel-derived LiAl0.25Co0.75O2 samples calcined at various temperatures indicates that electrodes calcined at 600degreesC show enhancement in capacity and cyclability. The variations in the local structures with Li deintercalation and cycling process of LiAl0.25Co0.75O2 were investigated as a function of calcination temperature using X-ray absorption spectroscopic technique. X-ray absorption near-edge structure and extended X-ray absorption fine structure results for LiAl0.25Co0.75O2 synthesized at 600 and 800degreesC during the charging and cycling process revealed that the large capacity fading of LiAl0.25Co0.75O2 synthesized at a higher temperature is strongly related to the remaining Co4+ ions and the local structure distortion.