To improve the quality of decision making in the process operations, it is essential to implement integrated planning and scheduling optimization. Major challenge for the integration lies in that the corresponding optimization problem is generally hard to solve because of the intractable model size. In this paper, augmented Lagrangian method is applied to solve the full-space integration problem which takes a block angular structure. To resolve the non-separability issue in the augmented Lagrangian relaxation, we study the traditional method which approximates the cross-product term through linearization and also propose a new decomposition strategy based on two-level optimization. The results from case study show that the augmented Lagrangian method is effective in solving the large integration problem and generating a feasible solution. Furthermore, the proposed decomposition strategy based on two-level optimization can get better feasible solution than the traditional linearization method. (C) 2009 Elsevier Ltd. All rights reserved.