Competition in China's cutthroat bike rental sector has reached new heights, with key players announcing generous funding plans and deposit-exemption schemes that require solid financial backing.

Ofo Inc said on Tuesday that it has raised $866 million in fresh funding led by e-commerce giant Alibaba Group Holding Ltd, in what it said was the largest investment garnered in a single round by a bike-sharing startup.

In addition to Alibaba, an existing investor, Alibaba affiliate Ant Financial Services Group and Chinese venture capital firms Haofeng Group, Tianhe Capital and Junli Capital participated in the round, the company said.

The fresh round is likely to stave off rumored calls for it to merge with archrival Mobike, which is backed by Tencent Holdings Ltd and operates its iconic orange fleet in more than 200 cities in countries including Chile, Singapore and the United Kingdom.

Also on Tuesday, second-tier player Hellobike rolled out deposit-free rides for users nationwide through a partnership with Sesame Credit, a credit-scoring system developed by Ant Financial.

Under the deal, Hellobike users with a Sesame Credit score of 650 or higher can register on the app without making a deposit. The company expects the plan to benefit 160 million riders and help save up to 30 billion yuan ($4.74 billion) worth of deposit by the end of this year.

A result of the merger last year between bike rental company Youon and Shanghai Jun Zheng Network Technology, Hellobike was said to have secured $1 billion from heavyweight investors such as Ant Financial and Fosun Capital in January, following two rounds of hefty investment deals at the end of last year.

"Our free deposit plan can only be guaranteed by rather strong capital injection. Our latest rounds of financing have served that goal," said Yang Lei, founder of Hellobike.

Hellobike ranked a distant third in terms of active user numbers after Ofo and Mobike, according to QuestMobile. But it tackled bike rentals in China's smaller cities outside of Beijing, Shanghai and Shenzhen, acting as a complementary to the duo's offerings.