WASHINGTON, Oct 18 (Reuters) - China-based DJI sued the

U.S. Defense Department on Friday for adding the drone maker to

a list of companies allegedly working with Beijing's military,

saying the designation is wrong and has caused the company

significant financial harm.

DJI, the world's largest drone manufacturer that sells more

than half of all U.S. commercial drones, asked a U.S. District

Judge in Washington to order its removal from the Pentagon list

designating it as a "Chinese military company," saying it "is

neither owned nor controlled by the Chinese military."

Being placed on the list represents a warning to U.S.

entities and companies about the national security risks of

conducting business with them.

DJI's lawsuit says because of the Defense Department's

"unlawful and misguided decision" it has "lost business deals,

been stigmatized as a national security threat, and been banned

from contracting with multiple federal government agencies."

The company added "U.S. and international customers have

terminated existing contracts with DJI and refuse to enter into

new ones."

The Defense Department did not immediately respond to a

request for comment.

DJI said on Friday it filed the lawsuit after the Defense

Department did not engage with the company over the designation

for more than 16 months, saying it "had no alternative other

than to seek relief in federal court."

Amid strained ties between the world's two biggest

economies, the updated list is one of numerous actions

Washington has taken in recent years to highlight and restrict

Chinese companies that it says may strengthen Beijing's

military.

Many major Chinese firms are on the list, including aviation

company AVIC, memory chip maker YMTC, China Mobile,

and energy company CNOOC.

In May, lidar manufacturer Hesai Group filed a

suit challenging the Pentagon's Chinese military designation for

the company. On Wednesday, the Pentagon removed Hesai from the

list but said it will immediately relist the China-based firm on

national security grounds.

DJI is facing growing pressure in the United States.

Earlier this week DJI told Reuters that Customs and Border

Protection is stopping imports of some DJI drones from entering

the United States, citing the Uyghur Forced Labor Prevention

Act.

DJI said no forced labor is involved at any stage of its

manufacturing.

U.S. lawmakers have repeatedly raised concerns that DJI

drones pose data transmission, surveillance and national

security risks, something the company rejects.

Last month, the U.S. House voted to bar new drones from DJI

from operating in the U.S. The bill awaits U.S. Senate action.

The Commerce Department said last month it is seeking comments

on whether to impose restrictions on Chinese drones that would

effectively ban them in the U.S. - similar to proposed Chinese

vehicle restrictions.

(Reporting by David Shepardson; Editing by Sandra Maler and

Muralikumar Anantharaman)