Baidu Inc, China's biggest search engine, agreed to buy xPerception, a U.S. company that develops visual perception software and hardware, as it expands efforts to produce driverless cars.

Often dubbed the 'Google' of China, the Chinese language search provider hopes that the acquisition will strengthen its previous ambitions. Baidu will house the company in its California-based research unit, which is currently developing AI and deep learning software. The company's latest move follows a series of ventures into artificial intelligence, virtual reality and driverless cars.

Formed by two former engineers from U.S. augmented reality startup Magic Leap, xPerception's acquisition signaled a challenge from Baidu to Google - which introduced its own driverless car, Waymo, back in 2009. It also opens a window of opportunity for AI innovation from China, a developing field for the country.

Rolling out driverless cars has been one of the top priorities for Silicon Valley for years – and it has become a heated race. Google last month took Uber to court alleging that the latter stole the trade secrets behind its driverless car unit.

Michael Ramsey, transportation and mobility analyst for the research firm Gartner, explained that the acquisition could "help push Baidu closer to the leaders" but that it has a long way to go.

"Right now, the largest tech players are scrambling to catch Uber, which has a big head start on virtually everyone," Ramsey told CNBC in an email. "That means that if you don't have the capability in-house, you have to acquire it.

"XPerception has expertise in processing and identifying images, an important part of the sensing for autonomous vehicles. The purchase may help push Baidu closer to the leaders, but it is just one piece."

Baidu hopes to harness the potential of xPerception's visual perception camera in its bid to develop autonomous cars. The camera's features include sophisticated tracking technology, three-dimensional obstacle detection, and object recognition.