(Reuters) -Australia's Domain Holdings said on Friday that U.S. online real estate firm CoStar ( CSGP ) had offered to buy the property classifieds firm in a deal valuing it at A$2.65 billion ($1.70 billion).

Domain said CoStar ( CSGP ) had acquired a 16.9% stake in the company on Thursday and has proposed to buy the rest of the shares at A$4.20 per share in cash.

The offer is at a 34.6% premium to Domain's closing share price of A$3.12 on Thursday.

A source had earlier told Reuters that CoStar ( CSGP ) was preparing a bid for Domain, which is about 60% owned by Australian media group Nine Entertainment.

The deal would be CoStar's ( CSGP ) first time owning an Australian asset.

($1 = 1.5623 Australian dollars)