WASHINGTON (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)