We report the experimental demonstration of laser cooling of bunched Li-like O5+16 ion beams at ∼64% of the speed of light in the storage ring CSRe. The longitudinal dynamics of laser-cooled bunched ion beams were investigated by observing the Schottky signals in real time with a high-sensitivity Schottky resonator. Furthermore, a multiparticle phase-space tracking code was developed to simulate the longitudinal Schottky spectrum of the ions inside the bucket and to interpret the experimental observations and derive the momentum distribution of the laser-cooled beams. We demonstrate that the relative longitudinal momentum spread of O5+ ion beams reached Δp/p≈2.0×10-6 with laser cooling, which is one order of magnitude smaller than what can be reached by electron cooling. The laser-cooling technique and the simulation method developed in this work can be applied to study phase-transition effects of bunched ion beams at storage rings and also pave the way for laser-cooling and precision laser spectroscopy experiments at the future large heavy-ion accelerator facilities HIAF (China) and FAIR (Germany), and the proposed Gamma Factory at CERN.