Youku.com, China's largest online video company, filed a lawsuit against its No.1 rival, Tudou Holdings Ltd, saying it incurred losses because of claims by Tudou that Youku had misused copyrighted material, the government-run Xinhua news agency reported on Thursday.

The suit, which intensifies the battle over hugely popular online video viewing in China, said the claims by Tudou caused Youku's share price and advertising revenue to decline, and raised concerns among investors and the U.S. Securities and Exchange Commission, Xinhua said.

Youku is listed on the New York Stock Exchange and Tudou on Nasdaq.

Tudou engaged in commercial speculation and unfair competitive practices, Youku claimed, and said it is seeking an apology and 4.8 million yuan ($762,000) in compensation, Xinhua said.

The report did not say when or where the lawsuit was filed. Phone calls to Youku and Tudou's headquarters went unanswered.

The two online sites are engaged in a heated battle for advertising revenue in China's online video market, which is estimated to be worth 1 billion yuan ($159 million) and is expected to grow at a double-digit rate.

The row began in December when the two sites traded accusations of stealing and reposting videos from each other's sites. [ID:nL3E7NG26S]

Each said they would initiate legal action against the other for copyright infringement. Thursday's news appeared to be a response by Youku about Tudou's public claims.

Chinese government estimates put the number of internet users in China at half a billion. Some 325 million Chinese watched online video last year, Xinhua quoted the China Internet Network Information Centre as saying.

Despite the fast-growing number of viewers, online video companies in China have been losing money because of rising costs for programming, marketing and bandwidth, Xinhua said.

($1 = 6.3018 yuan)

(Reporting by Terril Yue Jones; Editing by David Holmes)

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