By Jonathan Stempel

NEW YORK (Reuters) - Goldman Sachs Group Inc <GS.N> was sued on Tuesday by a major shareholder of a Malaysian bank it once advised, and which accused the Wall Street bank of fraudulently shortchanging it in a merger to curry favor with that country's prime minister.

In a complaint filed with the New York State Supreme Court in Manhattan, Primus Pacific Partners said it was seeking $510 million of damages from Goldman and former Managing Director Tim Leissner, after the bank concealed its conflicts of interest with Prime Minister Najib Razak and Malaysia's 1MDB sovereign wealth fund.

Goldman called the lawsuit "misguided" and said it would defend against it. A lawyer for Leissner did not immediately respond to requests for comment.

The complaint was filed six days after the U.S. government moved to seize $1 billion of assets bought with money it said was stolen from 1MDB by people close to Najib, including some money from bond offerings arranged by Goldman. Najib has repeatedly denied wrongdoing.

According to the complaint, Primus once owned 20 percent of EON Capital, a bank that Goldman was advising as it weighed a takeover bid from Malaysia's Hong Leong Bank Bhd <HLBB.KL>.

Primus said Goldman and Leissner in January 2010 deemed Hong Leong's first bid unfair, only to decide three months later that a revised offer only 2.8 percent higher was fair.

It said Goldman urged acceptance of the higher bid to bolster its standing with Najib, because a merger would "enrich" his brothers Nazim Razak, a Hong Leong director, and Nazir Razak, the chairman of CIMB Group Holdings Bhd <CIMB.KL>, which advised Hong Leong on the bid.

"As a result of Goldman Sachs's fraud and breach of fiduciary duties, the price at which HLB acquired EON Capital was hundreds of millions of dollars below fair value," Primus said. "No unconflicted investment bank could have found the second HLB offer fair or recommended that the board accept it."

Primus is seeking at least $170 million in damages, representing its alleged losses from Goldman's activity, plus at least $340 million in punitive damages.

Najib, his brothers, and 1MDB were not named as defendants. The fund's full name is 1Malaysia Development Berhad.

In June 2010, Hong Kong-based Primus had filed a lawsuit in Malaysia to stop Hong Leong's US$1.7 billion takeover of EON Capital. A court there dismissed the case the following April.

"This plaintiff previously lost its challenge in the Malaysian courts seeking to stop a transaction involving a Malaysian company, which was then approved by shareholders," Goldman spokesman Andrew Williams said in a statement. "We will vigorously contest this misguided additional lawsuit."

Primus said it learned of Goldman's alleged fraud in March, when press reports began detailing Leissner's alleged dealings with Najib and his eventual dismissal by Goldman, where he had been among the highest-paid bankers.

A lawyer for Primus was not immediately available for further comment.

Najib told reporters on July 21 that his government would cooperate with international investigations related to 1MDB.

The case is Primus Pacific Partners I LP v Goldman Sachs Group Inc et al, New York State Supreme Court, New York County, No. 653885/2016.

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)