Lai, 74, the founder of the pro-democracy Apple Daily newspaper, on Tuesday appeared in court alongside six other former Apple Daily staff. The daily tabloid closed in June after authorities raided the newspaper, arrested staff on national security grounds and froze assets.
Lai already faces two charges under a national security law that Beijing imposed on the former British colony last June, including collusion with a foreign country.
The additional sedition charge accuses Lai of conspiracy to print, publish, sell, distribute "seditious publications" between April 2019 and June 24, 2021.
Prosecutors allege that the publications could "bring into hatred or contempt or to excite disaffection" against the Hong Kong and Chinese governments, according to the charge sheet seen by Reuters.
Lai is among the most prominent people to be charged under the national security law that was enacted in June 2020 to punish terrorism, collusion with foreign forces, subversion and secession with possible life imprisonment.
Lai's repeated arrests and prosecutions have drawn criticism from Western governments and international rights groups, who say the law has been used to jail scores of pro-democracy campaigners, crush dissent and freedoms including of the press.
Hong Kong and Chinese authorities say the law has restored stability after protracted pro-democracy protests in 2019.
Lai has been convicted in several unauthorised assembly cases. He has been detained for over a year and is now in the maximum security Stanley Prison in solitary confinement, according to two sources familiar with the matter.
The same conspiracy to produce seditious publications charge was filed against the six former Apple Daily staffers, including chief editor Ryan Law, deputy chief editor Chan Pui-man, Next Digital CEO Cheung Kim-hung, Apple's parent media company, columnist Yeung Ching-kee, English edition editor Fung Wai-kong and senior editor Lam Man-chung.
The six have also been accused of "conspiracy to commit collusion with a foreign country or with external elements".
Magistrate Peter Law adjourned the case until February 24. All of the defendants will continue to be remanded in custody until then.
