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Facebook has lost a legal fight against a New York City prosecutor who sought search warrants for hundreds of user accounts.

The New York state Court of Appeals on Tuesday ruled that while the case raised important questions about privacy it was "constrained" by the law relating to who can challenge search warrants.

Prosecutors in Manhattan sought search warrants in 2013 for the accounts of 381 people in connection with a disability benefits fraud case against New York City police and fire retirees.

Menlo Park, California-based Facebook challenged the warrants, which it said were overbroad. In a statement, a spokesperson said the company was disappointed by the ruling and is continuing to evaluate its legal options.

The case has been closely watched by social media companies, civil libertarians and prosecutors.

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