China's Alibaba Group has stepped up its investment in cultural and digital entertainment industries with a strategic deal with leading online video source Youku Tudou.

The deal announced on Monday, means Alibaba and private equity firm Yunfeng Capital will buy an 18.5 percent stake in Youku Tudou for 1.22 billion U.S. dollars.

Alibaba holds 16.5 percent while Yunfeng Capital two percent. Alibaba's founder and chairman Jack Ma is a co-founder of Yunfeng Capital.

The cooperation will support Youku Tudou's innovation in the new emerging space and accelerate Alibaba's digital entertainment and video content strategy, said Ma.

It will also extend the Alibaba ecosystem and bring new products and services to Alibaba's customers, he said.

The deal will help Youku Tudou build a cultural entertainment platform that integrates online and offline entertainment," said Victor Koo, chairman and CEO of Youku Tudou.

Jonathan Lu Zhaoxi, CEO of Alibaba, will join Youku Tudou's board of directors.

Alibaba is planning its IPO in the United States.