Australia's consumer watchdog launched legal action accusing Google of misleading web users Thursday in a case that analysts said would "send a shudder" through the global IT industry.

The Australian Competition and Consumer Commission (ACCC) alleged Google has misled users by misidentifying sponsored links that appear on its results page, a major source of income for online search engine providers.

The ACCC also demanded Google stop publishing search results that failed to distinguish between paid advertisements and "organic" results.

It said the case arose in 2005 when Google's search engine listed two car dealerships from the New South Wales city of Newcastle as sponsored links, which are paid for by companies to attract Internet users.

The ACCC will seek declarations from the Federal Court that Google and Trading Post breached trade practices legislation, as well as injunctions preventing Google from publishing results that did not distinguish adverts.

Google Australia said it would fight the action.

The case is listed for an initial hearing in the Federal Court on August 21.