EBay sued Craigslist on Tuesday alleging that the classifieds company unfairly tried to dilute the online auctioneer's stake in it.

The online auction giant alleged that Craigslist's board including its founder Craig Newmark and chief executive, Jim Buckmaster unilaterally acted in a way to dilute eBay's 28.4 percent stake by more than 10 percent.

According to a blog posted on Tuesday, Craigslist said it was surprised and disappointed by eBay's allegations.

Craigslist added that it had always treated eBay fairly and plans to continue doing so irrespective of the unfortunate developments.

EBay received a minority ownership stake in 2004 before launching its own free online classifieds site called Kijiji last year in the U.S.

EBay and Craigslist have a stiff competition for the market in the United States.

Ebay