New York's Attorney-General has sued US President Donald Trump, three of his children and his namesake foundation, alleging "persistently illegal conduct" at the nonprofit including support for Mr Trump's 2016 campaign.

Key points: The lawsuit is seeking $US2.8 million of restitution plus penalties

The lawsuit is seeking $US2.8 million of restitution plus penalties It also calls for a 10-year ban on Mr Trump serving as a director of a New York nonprofit

It also calls for a 10-year ban on Mr Trump serving as a director of a New York nonprofit Mr Trump attacked the lawsuit on twitter, calling New York democrats 'sleazy'

Attorney-General Barbara Underwood asked a New York state judge to dissolve the Donald J Trump Foundation, and impose bans on Mr Trump, his sons Donald Jr and Eric, and his daughter from holding leadership roles in New York charities.

Ms Underwood said her office's 21-month investigation, begun under her predecessor Eric Schneiderman, uncovered "extensive unlawful political coordination" by the foundation with Mr Trump's campaign, as well as "repeated and willful self-dealing" to benefit Mr Trump's personal and business interests.

Among the transactions the lawsuit cited as illegal was a $US10,000 ($13,500) payment to the Unicorn Children's Foundation for a portrait of Mr Trump purchased at a fundraising auction in 2014, and $134,000 paid to another charity to settle a legal claim in 2007.

"Mr Trump ran the foundation according to his whim, rather than the law," the suit said.

The lawsuit filed in the state Supreme Court in Manhattan is seeking $3.7 million of restitution plus penalties, a 10-year ban on Mr Trump serving as a director of a New York nonprofit, and one-year bans for his children.

"As our investigation reveals, the Trump Foundation was little more than a chequebook for payments from Mr Trump or his businesses to nonprofits, regardless of their purpose of legality," Ms Underwood said in a statement.

"That is not how private foundations should function."

The foundation's board of directors had not met since 1999, the lawsuit said.

The Republican President attacked the lawsuit in a series of tweets that blamed Democratic politicians in his home state.

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"The sleazy New York Democrats, and their now disgraced (and run out of town) AG Eric Schneiderman, are doing everything they can to sue me on a foundation that took in $18,800,000 and gave out to charity more money than it took in, $19,200,000. I won't settle this case!" he tweeted.

Mr Schneiderman was forced to resign in May after four women came forward with claims of physical violence, including slapping, choking and verbal threats. He denied all allegations.

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The Trump Foundation issued a statement criticising the lawsuit as "politics at its very worst" and accusing the Attorney-General of holding its $2.3 million in remaining funds "hostage for political gain".

The foundation said Mr Trump himself had contributed more than $10.7 million, and that the foundation had already announced its intention to dissolve in 2016.

Mr Trump was quick to attack the Democrats on Twitter for filing the suit. ( AP: Andrew Harnik )

The lawsuit adds to legal problems affecting Mr Trump, including a probe by special counsel Robert Mueller into whether Mr Trump's 2016 campaign colluded with Russia.

Mr Trump and Russia have denied there was any collusion.

The lawsuit challenges the Trump Foundation's role in a fundraiser for military veterans that Mr Trump organised in 2016 instead of taking part in one of the Republican debates.

Some $3.7 million went to the foundation, the lawsuit said, and the foundation wrongly ceded control of those funds to Mr Trump's campaign staff, who wrongly disbursed grants at campaign rallies for Mr Trump's political benefit.

Paul S Ryan, head of litigation at Common Cause, a nonpartisan watchdog group in Washington, said the New York filing provides details of actions that could also violate a federal ban on campaigns funnelling "soft money" through nonprofits.

"This involvement of the Trump campaign in the foundation's disbursements right before the Iowa caucuses may very well violate the campaign finance law soft money ban," Mr Ryan said in an interview.

ABC/Reuters