The biggest-ever fund raising by an Indian Internet firm values Flipkart at USD 11.6 billion, the company said in a statement today.
The valuation was a decline from Flipkart's USD 15 billion reported worth in 2015.
Prior to the latest round of funding, it had raised more than USD 3 billion, mostly from international investors.
EBay will invest USD 500 million in Flipkart as the two firms will merge their operations in the country. As part of the deal, Flipkart will own and operate eBay's business in India when the deal closes later this year.
Besides giving Flipkart capital to fight competition from US Internet giant Amazon, the fund raising comes amid speculation that the homegrown e-commerce firm is in talks to buy out Snapdeal, which is backed by Japan's Softbank Group.
Launched by two former Amazon employees in 2007, Flipkart's biggest investor is US hedge fund Tiger Global. Its other investors include Accel Partners, DST Global and Baillie Gifford.
Earlier this year, Tiger Global appointed Kalyan Krishnamurthy as the chief executive of the 10-year old online marketplace to replace the position held by one of the company's founders.
As per industry watchers, the fresh funding may have come at a lower valuation but it is giving an indication of a turnaround under Krishnamurthy.
"This is a landmark deal for Flipkart and for India as it endorses our tech prowess, our innovative mindset and the potential we have to disrupt traditional markets," Flipkart founders Sachin Bansal and Binny Bansal said.
The latest funding round is the largest in Flipkart's 10-year history as well as in the country's Internet sector, Flipkart said in a statement.
China's Tencent -- which has also participated in this round -- owns social messaging app WeChat and has investment in various Indian online companies like Practo and Ibibo.
For eBay, the deal would see Flipkart acquiring its buyers in India after the close of the transaction. Flipkart will continue to operate eBay.In as an independent entity.
"eBay and Flipkart have also entered into an exclusive agreement in which they will jointly pursue cross-border trade opportunities to make eBay's global inventory accessible to more India consumers," eBay said in a statement.
With over 100 million customers, Flipkart owns fashion retailers Myntra and Jabong, logistics firm Ekart and payments app PhonePe.
The announcement comes at a time when Indian Internet companies have seen funding dry-up over the last few months as investors focus extensively on profitability and rationalisation of expenses.
Coupled with intense competition from deep-pocketed global rivals such as Amazon, companies like Flipkart and Snapdeal could face more heat in the coming days.
Flipkart and Snapdeal, like many other players, continue to report substantial losses as they pump in funds for building logistics infrastructure and marketing blitz.
Flipkart is also believed to be in talks to buy out Snapdeal that has SoftBank as a prominent shareholder.
The deal, if materialises, would mark the biggest acquisition in the Indian e-commerce space.
Gartner Research Director Sandy Shen said although India's e-commerce market is still at an early stage, the market is seeing signs of consolidation as scale is a key success factor in the business.
Flipkart has been and will continue to make acquisitions to increase scale and the next challenge is to strategise the path to a sustainable business model within a set timeframe, Shen said.
"Hopefully with the funding and expertise it is getting from the investors, it will be able to establish itself as a true market leader from both the technology and operational perspectives," Shen added.