KUALA LUMPUR - Malaysia's Serba Dinamik Holdings Bhd will take legal action against its auditor KPMG for negligence and breach of contract, its chairman Mohamed Ilyas Pakeer Mohamed said on Tuesday.

KPMG has "negligently red flagged some issues", he said at a news conference.

The company said it will be seeking punitive and aggravated damages from KPMG.

KPMG did not immediately respond to a request for comment.

In May, Serba said KPMG had not been able to verify contracts and transactions worth 3.5 billion ringgit ($842.97 million) with 11 customers of the oil and gas services group. 

Serba rejected the concerns and has said it saw no issues with the existence or legitimacy of the contracts.

Its shares have dropped around 60% since the audit issues were made public. ($1 = 4.1520 ringgit)

(Reporting by Liz Lee and Joseph Sipalan; Editing by Martin Petty) ((ananthalakshmi.as@thomsonreuters.com; Twitter: @AnanthalakshmiA;))