The car-hailing mobile app of Uber Technologies Inc. [Photo provided to China Daily]

Car-hailing service provider Didi Kuaidi and the US-headquartered rival Uber Technologies are to apply for legal status in China as the market, crucial to both, is expected to fill its regulatory gap soon.

Didi Kuaidi, a firm valued at $16 billion and backed by Chinese Internet giants Alibaba Group Holding and Tencent Holdings, said it had received a license to offer privately-registered car bookings in Shanghai, and was seeking permission from other cities.

Uber China also said on Thursday that it was "actively preparing" documents to apply for the car-booking license to meet new regulations governing the sector expected to be announced soon.

Shanghai's initiative to close regulatory grey zones came as China is moving to release its first regulation on ride-hailing services via mobile apps, and could prompt other cities to follow.

According to Uber, the company is opening a subsidiary in the Shanghai Free Trade Zone at the same time, as it plans to invest a total of 6.3 billion yuan ($991.5 million) in the country.

The two car-hailing giants are locked in a turf war in China, investing billions of dollars to lure passengers with steep discounts and subsidies to drivers.

However, as in many countries, regulatory issues remain the major uncertainty for car-on-demand service providers.

Didi Kuaidi is currently the dominant player, as according to data from consulting firm Analysys International, it provides 3 million daily rides covering 80 Chinese cities through private car services for 80 percent of market share.

Agencies contributed to this story.