Chief executive Marissa Mayer is under pressure from Yahoo investors to sell off the struggling company's core businesses.
The company's 15 per cent stake in Alibaba is thought to be worth $25bn (£17.5bn) and in selling it off Mayer said she would be "maximising value for our shareholders".
Yahoo's share price has steadily slumped in the last year, but was over two per cent up in early trading on the Nasdaq after Mayer signalled the company's intent to sell its Alibaba stake.
"Separating our Alibaba stake from Yahoo's operating business is essential to maximising value for our shareholders," she said.
"We can achieve this by working with the committee...while in parallel, aggressively executing our strategic plan to strengthen our growth businesses and improve efficiency and profitability."
In a statement, Yahoo said its new Strategic Review Committee would "establish a process for outreach to and engagement with potentially interested strategic and financial parties.
"The Strategic Review Committee will recommend to the Board whether any proposed transaction is in the best interests of the Company and its shareholders."