Alibaba Group Holding Ltd's on-demand services unit is close to securing $1.2 billion of funding for expansion after getting backing from first-time investors including Silver Lake Management and China's sovereign wealth fund, people familiar with the matter said.

The latest round for Koubei, which deals in local services such as food delivery, will surpass a $1 billion target with backing from China Investment Corp, according to the people, who asked not to be named because the matter is private. The round also includes Yunfeng Capital, a fund backed by Alibaba co-founder Jack Ma, and values the two-year-old startup at about $8 billion, they said.

Silver Lake, the largest technology-focused private equity firm, was an early investor in Alibaba but typically eschews early-stage backing for Chinese startups. On-demand local services have attracted major spending in past years and have become a costly battleground for Chinese internet companies from Alibaba to Tencent Holdings Ltd, as more people turn to the web to order take-out, schedule beauty treatments and hire domestic helpers.

Beijing-based Primavera Capital Group and CDH Investments are also investing in Koubei's round, the people said.

Fred Hu, chairman of Primavera, confirmed the company is an investor in Koubei without elaborating. Silver Lake declined to comment while CIC, CDH and Yunfeng didn't respond to requests for comment.

Baidu Inc is the other big player in a loosely defined "online-to-offline" market that's expected to reach 7.28 trillion yuan ($1 trillion) by 2017. Chinese users of location-based services could rise 29 percent to 400 million people next year, according to Shanghai-based internet consultant iResearch.

The intense competition for online consumption requires billions of dollars in marketing, subsidies and other incentives to encourage spending. It's also heightening tensions between the country's largest internet players.