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Age-related deficits in pattern separation have been postulated to bias the output of hippocampal memory processing toward pattern completion, which can cause deficits in accurate memory retrieval. Although the CA3 region of the hippocampus is often conceptualized as a homogeneous network involved in pattern completion, growing evidence demonstrates a functional gradient in CA3 along the transverse axis, as pattern-separated outputs (dominant in the more proximal CA3) transition to pattern-completed outputs (dominant in the more distal CA3). We examined the neural representations along the CA3 transverse axis in young (Y), aged memory-unimpaired (AU), and aged memory-impaired (AI) rats when different changes were made to the environment. Functional heterogeneity in CA3 was observed in Y and AU rats when the environmental similarity was high (altered cues or altered environment shapes in the same room), with more orthogonalized representations in proximal CA3 than in distal CA3. In contrast, AI rats showed reduced orthogonalization in proximal CA3 but showed normal (i.e., generalized) representations in distal CA3, with little evidence of a functional gradient. Under experimental conditions when the environmental similarity was low (different rooms), representations in proximal and distal CA3 remapped in all rats, showing that CA3 of AI rats is able to encode distinctive representations for inputs with greater dissimilarity. These experiments support the hypotheses that the age-related bias toward hippocampal pattern completion is due to the loss in AI rats of the normal transition from pattern separation to pattern completion along the CA3 transverse axis. [Display omitted] • Young (Y) rats show transition from pattern separation to pattern completion in CA3 • Aged memory-impaired (AI) rats show pattern completion in proximal and distal CA3 • AI rats can orthogonalize representations in two spatially, distinct environments • Aged memory-unimpaired rats show trends that are intermediate between Y and AI rats Lee et al. report that aged memory-impaired rats do not show functional heterogeneity in CA3. When the environment similarity was high, aged rats showed reduced orthogonalization in proximal CA3, resulting in the loss of the normal transition from pattern separation to pattern completion along the CA3 transverse axis. [ABSTRACT FROM AUTHOR]