Alibaba Group Holding Ltd. (NYSE: BABA) plans to merge its food delivery units and raise funds for the combined business, intensifying a battle with Tencent-backed Meituan Dianping for dominance of China's booming on-demand services market, sources told Reuters.

The Alibaba units to be merged include food delivery platform Ele.me and food and lifestyle services firm Koubei, the people said. Alibaba is looking to raise between $3 billion and $5 billion for the combined entity, said one source. The entity could be valued at up to $25 billion leading up to 2019.

A Hong Kong-based Alibaba task force is working on the merger and fundraising for the combined entity, according to two of the people.

Alibaba's units and Meituan, backed by social media and gaming giant Tencent Holdings Ltd., are fighting for supremacy in China's buoyant online-to-offline (O2O) market where apps link smartphone users with bricks-and-mortar businesses to provide local food delivery and other offerings.

In April, Alibaba bought the shares it did not already own in Ele.me in an all-cash deal that valued the startup at $9.5 billion. The e-commerce giant and its financial affiliate Ant Financial Services Group previously owned a 43 stake in the business, whose name roughly translates to "Hungry?"

Koubei, founded in 2015 as a 50-50 joint venture of Alibaba and Ant Financial, had a valuation of $8 billion at the end of 2017, according to a list of unicorns published by a unit under China's Ministry of Science & Technology in March. Silver Lake, CDH Investments, Yunfeng Capital and Primavera Capital joined as investors in a January 2017 funding round.