The practice, said the agency, harms US consumers with high prices.
The FTC released a statement reading: "Amazon's actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon."
What is the background to the lawsuit against Amazon?
The lawsuit follows a four-year investigation and was joined by 17 state attorneys general. It also follows similar government legal action aimed at breaking the hold of a handful of immensely powerful tech companies on the internet.
In Tuesday's lawsuit, filed in Amazon's hometown of Seattle, the FTC is seeking a permanent injunction ordering Amazon.com to halt what it says is unlawful conduct.
"Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies," said FTC Chair Lina Khan.
The government says Amazon, valued at over $1 trillion, punished sellers who tried to underprice Amazon by burying their offers on the company's platform. Similarly, it was found to have featured its own product far more prominently.
"Amazon is now exploiting that monopoly power to harm its customers, both the tens of millions of families that shop on Amazon's platform and the hundreds of thousands of sellers that use Amazon to reach them," said FTC Chair Khan.
Amazon released a statement saying the FTC, "is on the wrong side of the facts and the law, and we look forward to making that case in court."
The company then warned that, if successful, the suit would lead to "fewer products to choose from, higher prices, slower deliveries for consumers."
Amazon shares fell 3% upon news of the filing.
js/jcg (AFP, Reuters)