It took only a few months for new Yahoo chief executive Marissa Mayer to finalise an agreement with China's Alibaba Group, which in the last two years has not come in to terms with the CEOs that came before her.

On Tuesday, the two firms announced a $US7.6 billion deal that according to Alibaba chief executive Jack Ma will redefine the otherwise tumultuous relationship between the American and Chinese company.

"The completion of this transaction begins a new chapter in our relationship with Yahoo," Mr Ma said in a statement.

He has agreed to pay more than seven times what Yahoo had paid, $US1 billion, seven years ago in acquiring 40 per cent stakes in Alibaba, which has grown into a multi-billion internet conglomerate that caters to a client database double the size, or more, of the U.S. market.

In exchange, Alibaba will be able to manoeuvre with more leeway despite Yahoo retaining 23 per cent of interest in the group. Analysts said, Mr Ma has been aching to flex more muscles once his expanding business empire goes public.

Alibaba's IPO will likely become a reality by 2015, The Associated Press (AP) reported on Wednesday.

Even then, the new Yahoo deal sealed under the supervision of Ms Mayer smells great success for the new ship captain of a company that has been grappling to retrace the old glory of the web brand that was one of the pioneers of e-commerce.

The two firms had agreed that Alibaba can buy back Yahoo's shares in the group, at least 50 per cent of what the U.S.-based firm currently holds, prior to Alibaba's market debut. The rest, AP said, Yahoo can sell while the IPO is underway, promising more windfalls for Ms Mayer's firm.

Up to $9 billion could be in Yahoo's coffers in the immediate years ahead thanks much to Alibaba's consistent rise, AP said.

Excluding tax duties, the Alibaba-Yahoo deal is set to boost Yahoo's present cash holdings to more than $US6 billion, half of which Ms Mayer said will be used to buy back stocks from company shareholders.

In a statement, the Yahoo chief said the newly-inked deal with Alibaba "yields a substantial return for investors while retaining a meaningful amount of capital within the company to invest in future growth."

When she mentioned 'growth', Ms Mayer meant to expand Yahoo's internet and media presence though acquisitions of emerging websites, analysts said.

Currently on her cross-hair, they added, are Foursquare and Pinterest, two of the hottest online attractions that caught the eye of millions around the world.

The growth path also includes upgrading the present stable of Yahoo talents, which Ms Mayer hopes would underpin her overall strategy of reviving what she called in July as one of the most revered brand in the tech world.

And she has a war-chest of around $US1.3 billion to fire up all her plans, AP said, plus the confidence of Yahoo shareholders.