March 17 (Reuters) - Arizona's attorney general on Tuesday filed criminal charges against Kalshi, accusing the prediction market platform of operating an illegal gambling business in the state and unlawfully allowing people to place bets on elections.

The misdemeanor charges filed by Arizona Attorney General Kris Mayes marked the first time a state has pursued a criminal case against Kalshi, which has been at the center of an escalating battle over the ability of state gaming regulators to police prediction market operators.

"Kalshi may brand itself as a 'prediction market,' but what it's actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law," Mayes said in a statement.

New York-based Kalshi in a statement lamented that "a state can file criminal charges on paper-thin arguments." It said its business was different from sportsbooks and casinos and "should not be overseen by a patchwork of inconsistent state laws."

"States like Arizona want to individually regulate a nationwide financial exchange, and are trying every trick in the book to do it," the company said.

Companies like Kalshi let users place financial bets on the outcome of a wide range of events such as sports and elections by trading "events contracts."

Kalshi contends that these contracts fall under the Commodity Futures Trading Commission's exclusive jurisdiction. The agency under President Donald Trump has backed prediction markets in their legal fight against claims by states that they are unlicensed gambling operations.

Mayes' office in a 20-count criminal information filed in Maricopa County Superior Court alleged that Kalshi violated Arizona law by accepting bets from residents on events including professional and college sports.

Prosecutors also alleged that Kalshi illegally accepted bets on the 2028 presidential race, the 2026 Arizona gubernatorial race, the 2026 Arizona Republican gubernatorial primary, and the 2026 Arizona secretary of state race.

Kalshi had on Monday sought to head off a possible state enforcement action by suing in federal court to block Arizona from pursuing a case against it. But U.S. District Judge Michael Liburdi denied its request for a temporary restraining order.

No other state has filed a criminal case against Kalshi. Massachusetts, Nevada and Michigan have filed civil lawsuits to block it from offering sports events contracts in their states. A Massachusetts judge has issued an injunction to block it from doing so, though that ruling is on hold while Kalshi appeals.