SYDNEY - U.S. online real estate firm CoStar is preparing a A$2.7 billion ($1.72 billion) bid for Australian property classifieds firm Domain Holdings, said a person with direct knowledge of the matter.

CoStar declined to comment. Domain, which is about 60% owned by Australian media group Nine Entertainment, did not immediately respond to a request for comment from Reuters.

CoStar began buying Domain stock at A$4.20 a share on Thursday and has gained control of as much as 19% of the company, the person said.

The person declined to be identified discussing confidential information.

A term sheet seen by Reuters, which did not identify the buyer of the stock, said the suitor intended to launch a full takeover at A$4.20 a share.

The offer is a 34.6% premium to Domain's closing share price on Thursday of A$3.12. Domain's shares are up 23.3% so far this year.

Nine Entertainment declined to comment.

Nasdaq-listed CoStar is a U.S online real estate firm and the transaction would be its first time owning an Australian asset.

Last week Domain said its half year profit rose 28.3% to A$33.1 million, excluding significant items, while its first half revenue rose 7.4% to A$217.2 million.

($1 = 1.5689 Australian dollars)

(Reporting by Scott Murdoch; additional reporting Aaditya Govind Rao in Bengalaru. Editing by Tomasz Janowski, Christopher Cushing and Susan Fenton)