Analysts said the handover of Alipay, an online e-commerce payment system similar to eBay Inc's PayPal, to Alibaba Chief Executive Jack Ma has reduced the value of Yahoo's 43 percent Alibaba stake. Alibaba also operates China's largest e-commerce company, Alibaba.com Ltd.

Yahoo said it had been blindsided by the deal, while Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat, now held by former Yahoo Chief Executive Jerry Yang, who is also a Yahoo director.

Shares of Yahoo have fallen as much as 14 percent since the company first disclosed the transfer in a regulatory filing after markets closed on Tuesday.

The feud underscores the tense relationship between Ma and Carol Bartz, Yahoo's chief executive since January 2009.

Bartz is under pressure to boost revenue and drive more visitors to Yahoo, which is losing ground to rivals including Google Inc and Facebook. The Alibaba stake is considered one of Yahoo's most valuable assets.

Both Bartz and Yahoo Chairman Roy Bostock are in the "hot seat," said Eric Jackson, managing member of the hedge fund Ironfire Capital, which owns Yahoo stock.

"At best it makes it look like Yahoo -- Jerry Yang especially -- has been out of the loop," he said. "The Yahoo board has to be looking into the mirror and saying: 'What do we need to change to make this right?'"

In afternoon trading, Yahoo shares were down 61 cents, or 3.6 percent, at $16.56, after earlier falling as much as 7 percent to $15.96. They had closed Tuesday at $18.55.

Yahoo invested $1 billion in Alibaba in 2005, but Alibaba has made clear it wants to buy out Yahoo's stake.

"I just don't trust them," Ma told Forbes magazine in its April 11 edition.

Bartz told Reuters in September she has no plans to sell.

Some analysts estimate that Yahoo's Asian assets, including a 35 percent stake in Yahoo Japan Corp, represent at least half the Sunnyvale, California-based company's market value.

Yahoo and Alibaba do not agree on when Alipay was transferred to Ma, or whether Alibaba's board knew about it.

Alibaba said the board was told in July 2009 that the transfer had occurred. Yahoo said the transfer happened in August 2010, giving Ma full ownership of Alipay, and Yahoo did not learn of it until March 31, 2011.

Japan's Softbank Corp also owns a stake in Alibaba. Four directors make up Alibaba's board, including Yang and Softbank founder Masayoshi Son.

"I find it impossible to believe, as a rational matter, that a board member from Yahoo could sit through a proceeding whereby a valuable asset was transferred to the Alibaba CEO, and not object," said Manning Warren, a corporate law professor at the University of Louisville.

In a statement on Friday, Alibaba spokesman John Spelich said directors were "told in a July 2009 board meeting that majority shareholding in Alipay had been transferred into Chinese ownership."

According to Alibaba, the move was necessary to comply with Chinese law, to ensure Alipay could continue operating.

Later Friday, Yahoo stood by its earlier statement that the Alipay deal occurred "without the knowledge or approval of the Alibaba Group board of directors or shareholders."

Yahoo said it is in "active and constructive" talks with Alibaba and Softbank "to preserve the integrity" of its stake.

"It's surprising you can have that sort of communication lapse," said Ken Sena, an Evercore Partners analyst.

David Einhorn's hedge fund Greenlight Capital last week took a "significant" stake in Yahoo, saying its Alibaba interest could ultimately be worth more than Yahoo is now.

Warren said Yahoo might try to sue Ma under Delaware law, saying Ma would have to show that his acquisition of a major asset from his own company had been conducted fairly.

Meanwhile, if in fact Yahoo had been in position to stop the Alipay transfer, Yahoo itself might be sued, said Mark Rifkin, a partner at Wolf, Haldenstein, Adler, Freeman & Herz.

"It could even give rise to a Yahoo shareholder claim against Alibaba," given the 43 percent stake, he added.

Disputes such as this could dampen U.S. investors' enthusiasm for companies based in China, Ironfire's Jackson said. "I definitely think it can spook people," he said.