Alibaba sued the vendors for allegedly selling fake Swarovski watches on its Taobao platform.
The move comes just two weeks after the company was put back onto the US`s "notorious markets" list over failing to curb the sale of counterfeit goods.
Alibaba had been taken off the list four years ago, but US authorities say the firm`s online platform Taobao is being used to sell "high levels" of fake goods.
The lawsuit against two unnamed vendors claims 1.4 million yuan ($201,671, £163,419) in damages, the company said.
The counterfeiters were found out during a "test-buy purchase programme" when the watches they sold were confirmed by Swarovski to be fakes.
In a subsequent police raid, more than 125 counterfeit watches worth nearly 2 million yuan were confiscated.
Alibaba said it would continue to crack down on counterfeiters and that it already had a list of other suspected vendors who would face similar action.
"We want to mete out to counterfeiters the punishment they deserve in order to protect brand owners," Alibaba said in a statement.
The Chinese online retailer and its market place Taobao have long been accused of being a platform for counterfeit goods.
In May last year, Alibaba was suspended from the International Anti-Counterfeiting Coalition (IACC) watchdog over piracy concerns.
Alibaba, China`s biggest online retailer floated on the New York Stock Exchange in September 2014 and broke records by raising $25bn.
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