SYDNEY (Reuters) -Australia said on Wednesday it will add YouTube to sites covered by its world-first ban on social media for teenagers, reversing an earlier decision to exempt the Alphabet-owned video-sharing site and potentially setting up a legal challenge.

The decision came after the country's internet regulator last week urged the government to overturn a YouTube carve-out, citing a survey that found 37% of minors reported seeing harmful content on the site.

"Social media has a social responsibility and there is no doubt that Australian kids are being negatively impacted by online platforms so I'm calling time on it," Prime Minister Anthony Albanese said in a statement.

"I want Australian parents to know that we have their backs."

The decision broadens the ban due to take effect in December. YouTube says it is used by nearly three-quarters of Australians aged 13-15, and it should not be classified as social media because its main activity is hosting videos.

Since the government said last year that it would exempt YouTube due to its popularity with teachers, platforms included in the ban such as Meta's Facebook and Instagram, Snapchat and TikTok have complained.

They contend that YouTube has key similarities to their products including letting users interact and recommending content through an algorithm based on activity.

The reversal, meanwhile, sets up a fresh dispute between Australia and Alphabet, which threatened to withdraw some Google services from Australia in 2021 to avoid a law forcing it to pay news outlets for content appearing in searches.

"Our position remains clear: YouTube is a video sharing platform with a library of free, high-quality content, increasingly viewed on TV screens. It's not social media," a YouTube spokesperson said by email.

Last week, YouTube told Reuters it had written to the government "urging them to uphold the integrity of the legislative process". Australian media reported YouTube threatened to challenge the ban in court, although YouTube did not confirm that.

The relevant law, which passed in November, says only that social media platforms must take reasonable steps to keep Australians aged under 16 out or face a fine of up to A$49.5 million.

The government is due to receive a report this month on tests of age-checking products, and it has said those results will influence how the ban will be enforced.

($1 = 1.5363 Australian dollars)