The government says TikTok violated the Children's Online Privacy Protection Act that requires services aimed at children to obtain parental consent to collect personal information from users under 13.
The Chinese-owned short-video platform boasts around 170 million US users, and is currently fighting a new law that would force ByteDance to divest TikTok's US assets by January 19 or face a ban.
The lawsuit is the latest US action against TikTok and its Chinese parent over fears the company improperly collects vast amounts of data on Americans for the Chinese government, while influencing content in a way that could harm Americans.
The suit, which was joined by the Federal Trade Commission, said it was aimed at putting an end "to TikTok's unlawful massive-scale invasions of children's privacy".
Representative Frank Pallone, the top Democrat on the Energy and Commerce Committee, said the suit "underscores the importance of divesting TikTok from Chinese Communist Party control".
"We simply cannot continue to allow our adversaries to harvest vast troves of Americans' sensitive data," he said.
TikTok said it disagrees "with these allegations, many of which relate to past events and practices that are factually inaccurate or have been addressed".
"We are proud of our efforts to protect children, and we will continue to update and improve the platform," the company said.
The Justice Department said TikTok knowingly permitted children to create regular TikTok accounts, and then create and share short-form videos and messages with adults and others on the regular TikTok platform.
TikTok collected personal information from these children without obtaining consent from their parents.
The US alleges that for years millions of American children under 13 have been using TikTok and the site "has been collecting and retaining children's personal information".
"TikTok knowingly and repeatedly violated kids' privacy, threatening the safety of millions of children across the country," said the trade commission's chair Lina Khan, whose agency in June referred the case to the Justice Department.
The commission is seeking penalties of up to $US51,744 ($A79,357) per violation per day from TikTok for improperly collecting data, which could theoretically total billions of dollars if TikTok was found liable.
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