News: The transaction is Alibaba’s largest overseas acquisition to date.
The Chinese online marketplace firm will pay $500m for new shares in the closely held company and purchase an equal amount from existing investors.
Investors who divested their stakes in Lazada include Rocket Internet, Tesco and Investment AB Kinnevik.
Rocket Internet said the deal values Lazada at $1.5bn. The company is selling a 9.1% stake in Lazada and keeping an 8.8% interest.
Currently, Lazada operates e-commerce platforms in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
For 2014, Lazada reported net revenue of $154.3m. Net operating losses were $152.5m, up from a loss of $67m in the year earlier.
Just 3% of Southeast Asia’s entire retail sales are carried out online. The region is estimated to provide better growth potential to both companies as internet penetration continues to increase.
Lazada Group CEO Max Bittner said: "Southeast Asia is an attractive mobile-driven consumer market that is highly fragmented and diverse with significant barriers to entry and a nascent modern retail sector that has large headroom for growth.
"The transaction will help us to accelerate our goal to provide the 560 million consumers in the region access to the broadest and most unique assortment of products.
The deal also includes options to buy out certain Lazada shareholders in a 12 to 18 month period once the transaction completes.
Alibaba president Michael Evans said: "Globalisation is a critical strategy for the growth of Alibaba Group today and well into the future.
"With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base outside China, a proven management team and a solid foundation for future growth in one of the most promising regions for eCommerce globally.
The transaction comes after Alibaba in December agreed to acquire the South China Morning Post (SCMP) and other media assets of SCMP Group for $266m.
In June 2015, Alibaba agreed to acquire an undisclosed stake in domestic financial media company China Business News for $194m.