Yahoo reportedly scanned millions of email accounts on behalf of the US government.
News agency Reuters reports that the tech firm built special software last year which was able to scan for a string of characters in response to a classified request from either the National Security Agency or FBI.
Such requests are normally made to aid in the prevention of terror attacks or situations deemed to be of similar magnitude.
Yahoo opted not to challenge the order in the Foreign Intelligence Surveillance Court as it felt it would lose, according to two former Yahoo employees among three sources cited by Reuters.
They said that several Yahoo employees were unhappy with the decision.
“Yahoo is a law abiding company, and complies with the laws of the United States,” Yahoo said in a statement.
Yahoo made unwanted headlines recently when it was revealed that hackers stole the details of about 500 million of its users in the largest cyber security breach in history.
US intelligence agencies said the hack was thought to be “state-sponsored” but that claim was refuted by cyber security firm InfoArmor.
Yahoo was warned that it could have been targeted before Verizon move to buy it for $4.8 billion in August.
That deal, which is yet to go through, could be in jeopardy.
Several of the US’ top tech firms responded to the latest Yahoo claims from Reuters.
A Google spokesman said: “We’ve never received such a request, but if we did, our response would be simple: ‘no way’.”
Microsoft said it had “never engaged in the secret scanning of email traffic”.
Facebook claimed it had “never received a request like the one described in these news reports from any government, and if we did we would fight it”.
Twitter said: “We’ve never received a request like this and, were we to receive it, we’d challenge it in a court.”