NEW YORK (Reuters) - Media conglomerate Viacom Inc. sued Google Inc. and its Internet video-sharing site YouTube for more than $1 billion on Tuesday in the biggest challenge yet to the Web search leader's strategy to dominate the online video market.

The lawsuit accuses Google and its popular online video unit of "massive intentional copyright infringement" for allowing users to upload popular shows, threatening ambitions to make YouTube a major entertainment and advertising outlet.

The legal challenge from Viacom, home to the MTV and Comedy Central channels, also suggested a wider battle between traditional and Internet media companies that now compete for audiences and advertising dollars.

"This is a seminal event in Media-Internet relations ... and how the value of content will be clarified in the online medium," wrote UBS analyst Aryeh Bourkoff in a client note.

Shares in Viacom slipped 9 cents to close at $39.48 on the New York Stock Exchange and Google shares fell $11.72, or 2.6 percent, to $443.03 on Nasdaq.

Viacom has been the most vocal critic of YouTube during months of negotiating over payment for use of its programming. The Sumner Redstone-controlled company last month demanded YouTube pull over 100,000 video clips uploaded by users.

"YouTube's strategy has been to avoid taking proactive steps to curtail the infringement on its site, thus generating significant traffic and revenues for itself while shifting the entire burden -- and high cost -- of monitoring YouTube on to the victims of its infringement," Viacom said. 

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