Hi Richard, Thanks for your reply. After doing more research, I found some help on google (I cant track back from which site I got this solution.. extremely sorry for that). I modified their code a bit and managed to change the directory structure within media folder. My update code looks like (I copied most of the part from internet):

protected override void ApplicationStarted(
    UmbracoApplicationBase umbracoApplication,
    ApplicationContext applicationContext)
    {
        //Create a custom route
        RouteTable.Routes.MapRoute(
            "LOS",
            "LOS/{action}/{id}",
            new
            {
                controller = "LOS",
                action = "Index",
                id = UrlParameter.Optional
            });
        MediaService.Saving += MediaService_Saving;
    }

    void MediaService_Saving(IMediaService sender, SaveEventArgs<Umbraco.Core.Models.IMedia> e)
    {
        var fs = FileSystemProviderManager.Current.GetFileSystemProvider<MediaFileSystem>();
        foreach (var media in e.SavedEntities)
        {
            if ("Image".Equals(media.ContentType.Alias))
            {
                //Assuming Media item only has one umbracoFile property to handle
                var umbracoFileProperty = media.Properties["umbracoFile"];
                //Path will have this format /media/1234/koala.jpg

                string newPath = "";
                //var tree = sender.GetAncestors(media);                
                //foreach (var parent in tree)
                //{
                //    newPath += "\\" + parent.Name;
                //}
                IMedia _media = sender.GetParent(media);
                while (_media != null)
                {
                    newPath = _media.Name + "\\" + newPath;
                    _media = sender.GetParent(_media);
                }


                var imagePath = umbracoFileProperty.Value.ToString();
                var fullPath = fs.GetFullPath(imagePath);
                var relativePath = fs.GetRelativePath(fullPath);

                //Update the path for each thumbnail
                var thumbnails = fs.GetThumbnails(relativePath);
                thumbnails.ForEach(thumbnail => SetNewImagePath(thumbnail, newPath, true, fs));
                //Update the path for the 'main' image
                var newImagePath = SetNewImagePath(relativePath, newPath, false, fs);
                //Update property with new image path
                umbracoFileProperty.Value = newImagePath;

                //Remove old image and thumbnails
                fs.DeleteFile(relativePath, true);
            }
        }
    }

    private string SetNewImagePath(string imagePath, string newImageLocation, bool isThumbnail, MediaFileSystem fs)
    {
        var file = fs.GetFileName(imagePath);
        //Extract name of file
        var fileNameNoExt = file.Substring(0, file.LastIndexOf('.'));
        if (isThumbnail)
            fileNameNoExt = fileNameNoExt.Replace("_thumb", "").Replace("_big-thumb", "");
        //Extract name of directory
        var folderName = imagePath.Substring(0, imagePath.IndexOf('\\'));
        //Assemble new path
        //var newImagePath = imagePath.Replace(fileNameNoExt, folderName);
        var newImagePath = newImageLocation+'\\'+imagePath;
        //Move file to new path, and override any existing image
        using (var fileStream = fs.OpenFile(imagePath))
        {
            fs.AddFile(newImagePath, fileStream, true);
        }
        //Return the full path as that is what we want to store
        return fs.GetUrl(newImagePath);
    }