FRANKFURT (Reuters) - German lender Landesbank Baden-Wuertemberg has accused Deutsche Bank of fraud in a $173 million lawsuit over the sale of mortgage-backed securities during the financial crisis.

The complaint was filed in the New York State Supreme court by LBBW and Spencerview Asset Management, over the purchase of residential mortgage-backed securities (RMBS) in 2007, a court filing shows.

Deutsche Bank on Friday said it believes the suit to be without merit and that it will defend itself vigorously.

The plaintiffs allege that the bank created, issued, and sold RMBS containing loans which the bank knew were defective, and took trading positions that paid off when the mortgage market collapsed.

"Deutsche Bank's singularly negative view of these loans and the RMBS they backed, led it, starting as early as 2005, to bet against the U.S. housing market," the lawsuit said.

The plaintiffs said they feel misled about the claims made about the mortgage underwriting standards, the appraisals of the mortgaged properties, and other facts regarding the collateral underlying the Deutsche Bank RMBS.

(Reporting By Edward Taylor and Jonathan Stempel; Editing by Hans-Juergen Peters)