Google confirmed on Monday that it is building an online shopping bargain service that would compete with start-up Groupon, which reportedly spurned a takeover bid by the Internet titan.

"Google is communicating with small businesses to enlist their support and participation in a test of a pre-paid offers/vouchers program," a company spokesman told AFP.

"This initiative is part of an ongoing effort at Google to make new products, such as the recent Offer Ads beta, that connect businesses with customers in new ways."

Google declined to comment on reports that the service would be called "Offers" and operate in a style similar to Groupon, which emails members daily deals from local businesses.

The Internet coupon service announced two weeks ago that it had raised $950 million in the past month to invest in technology, fund its global expansion and compensate company employees and early investors.

The two-year-old company said it had raised the money from venture capital firms and "late stage investors" including Andreessen Horowitz, Battery Ventures, Greylock Partners and Kleiner Perkins Caufield & Byers.

The Chicago-based start-up, which offers subscribers online coupons for discounts on a broad range of consumer goods and services, had earlier rejected a reported $5 billion takeover offer from Google.

Groupon disclosed early in January that its number of subscribers had grown to 50 million from just two million at the beginning of 2010.