Etihad Airways, one of the Gulf region's fast-growing carriers, said on Tuesday it has bought a 3.96 percent equity stake in Virgin Australia.
In an announcement posted by Virgin on the Australian stock market, Etihad said it built its holding over recent weeks through on-market share purchases.
Virgin shares were trading at 41 Australian cents (40 US cents) Tuesday.
The two airlines are already part of an alliance which features codesharing on each other's flights, reciprocal frequent flyer recognition and joint bidding for corporate accounts.
"Etihad Airways believes that this equity investment in Virgin Australia's domestic operations significantly strengthens the 10-year strategic partnership forged by the two companies in August 2010," it said.
"It will enrich the commercial benefits which the alliance already provides for both airlines, as well as increasing the benefits to Australian consumers and visitors to Australia."
Etihad has recently been on a buying spree, increasing its stake in Air Berlin to almost 30 percent. It also owns 40 percent of Air Seychelles.