A Chinese political prisoner sued Yahoo! in a US federal court, accusing the internet company of helping the Chinese government torture him by providing information that led to his arrest.

The suit, filed under the Alien Tort Claims Act and the Torture Victims Protection Act, is believed to be the first of its kind made against an American internet company.

Wang Xiaoning, who is serving a 10-year sentence in China, and his wife, Yu Ling, who is currently in San Francisco, are seeking damages and an injunction barring Yahoo! from identifying political opponents to the Chinese authorities.

Mr Wang was arrested after distributing online articles calling for democratic reform and a multiparty system in China via Yahoo! sites in 2000 and 2001. His suit contends that Yahoo!’s Hong Kong office provided police in China with information that linked him to the postings. Mr Wang was arrested in September 2002 and says he was beaten while in detention.

A Yahoo! spokesman said the company “is distressed that citizens in China have been imprisoned for expressing their political views on the internet", but said it had not had time to review Mr Wang's lawsuit.

It added: “However, the concerns raised about the Chinese government compelling companies to follow Chinese law and disclose user information are not new. Companies doing business in China must comply with Chinese law or its local employees could be faced with civil and criminal penalties."

Lawyers said the lawsuit will encounter a number of hurdles – including the fact that Yahoo! has always complied with Chinese laws.

However, it comes as internet groups see increased activism from investor groups over online-related human rights issues.

Google, Yahoo!, Microsoft and Cisco have all faced fierce criticism for doing business in China, a state dubbed "the world champion of internet censorship" by Reporters Without Borders, the press freedom group.

Google will face a showdown with shareholders over its business in China and other territories that censor the web, at its annual meeting on May 10.

The Office of the Comptroller of New York City, which controls police, fire department and teachers’ pensions funds, has demanded a shareholder vote calling for measures designed to safeguard free speech online.

The vote will include a call for Google not to store information that can identify its users in “internet restricting countries, where political speech can be treated as a crime by the legal system”.

Other policies being proposed ask that Google not engage in "proactive censorship" and that it use all legal means to resist demands for censorship.

Google's board has recommended a vote against the shareholder proposal. Since two thirds of Google’s voting stock is owned by its co-founders and chief executive, who sit on the board, the proposal has no chance of being passed.

Human rights groups say that Yahoo has helped the Chinese authorities identify at least four people, including the journalist Shi Tao in 2004, who have since been imprisoned for voicing dissent in cyberspace.

In January, F&C Asset Management, which manages some £106 billion, gave a public “warning” to the technology, media and telecoms companies to rethink “tough issues” such as setting up shop in China while toeing Beijing’s line on censorship.

Citing the example of Cisco, an F&C report - Managing Access, Security & Privacy – described how the group faced an investor revolt last year when 29 per cent of shareholders supported a proposal demanding it to report on how its products are being used to limit freedom of expression. Cisco sells network equipment to the Chinese authorities that is used in the so-called "Great Firewall", the blocking apparatus that Beijing uses to censor online content.

Yahoo!, Google and Microsoft, Cisco were also called before the US Congressional Subcommittee on Global Human Rights last year to explain their roles in China.

Karina Litvak, F&C’s head of governance and sustainable investment, said that companies are obliged to comply with local laws.

However, she added that they are also “expected to meet rapidly-evolving global human rights standards. The only way is for the industry as a whole to develop clear protocol for how to interact with governments when faced with these sensitive issues, whether in China, Europe, the US or elsewhere."

F&C said it was worried about "the pitfalls of regulatory clampdowns, penalties and public relations disasters".

It highlighted the case of AT&T, Verizon and BellSouth, the US telecoms groups that are now being sued for a combined $200 million for violating privacy laws after allegedly submitting customer records to the US National Security Agency's anti-terrorist call-tracking programme last year.

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