US retail behemoth Walmart said Wednesday it will buy a 77 percent stake in Indian online sales giant Flipkart for $16 billion in the world's biggest e-commerce deal.

The blockbuster takeover threatens a major blow to rival Amazon's ambitions in India. Flipkart and Amazon have been going head-to-head in a costly battle for domination of one of the fastest growing online retail markets since 2013.

The deal, announced in a joint statement, values Flipkart, India's largest e-tailer on the basis of sales, at just over $20 billion.

"India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market," Walmart president Doug McMillon said.

The announcement ended months of speculation that Walmart, the world's biggest retailer, was preparing to take over Flipkart. Both had repeatedly declined to comment on the talks.

Walmart said it would pump $2 billion into Flipkart, giving the Indian e-tailer a bigger war chest to fight off a huge challenge from Amazon, which is rapidly expanding its reach.

Binny Bansal, Flipkart's co-founder and group chief executive officer, said the deal "is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India".

Masayoshi Son, the CEO of Japan's SoftBank, had earlier confirmed to reporters in Tokyo that the deal had been agreed.

He said SoftBank's $2.5 billion stake in the company would be worth $4 billion with the acquisition.

Amazon has expanded aggressively since it entered the Indian market in 2013.

Boss Jeff Bezos has committed more than $5 billion to grabbing a big slice of India's e-commerce pie after failing to make inroads in China.

E-commerce sales in India hit $21 billion last year according to market research company Forrester, and are expected to soar as its population of 1.25 billion people make greater use of internet access.

Flipkart was founded in 2007 by former Amazon employees Sachin Bansal and Binny Bansal, who are not related.

Like Amazon, it started as an online bookstore. Flipkart now sells everything from mobile phones, televisions and juicers to running shoes, sofas and beauty products.