In a blog post yesterday, Digg announced that its service would be combined with News.me, a Betaworks company that delivers news stories to users based on what has been shared by their friends on Facebook and Twitter.
News.me operates iPhone and iPad apps, as well as a daily email system.
Launched seven years ago, Digg claims to have generated 350 million 'Diggs', 28 million story suggestions and 40m comments.
The service particularly rose to prominence in 2005 after images taken from the mobile phone of Paris Hilton were posted on the site.
Big growth in its users made founder Kevin Rose an internet star, although he left the company in 2011 after an unpopular redesign led to a slump in traffic, as disgruntled users voted with their feet.
The Next Web reports that Digg has suffered further decline in traffic in recent years as competitors emerged such as Reddit and Stumbleupon, but has seen its fortunes revived of late with a new Facebook app.
However, many users now prefer to be made aware of breaking and popular news stories by simply going on microblogging site Twitter.
Digg said that it has been considering its options over the past few months, and feels that the deal with Betaworks represents the best way to take the service "back to its startup roots".
"We couldn't be happier to announce that the next generation of Digg will live on with the team from Betaworks," said Digg.
"Betaworks is combining Digg with News.me, a Betaworks company with an iPad app, iPhone app and daily email that delivers the best stories shared by your friends on Facebook and Twitter."
Digg will join Betaworks's portfolio of products that are aimed to improve the way people find and discuss the news.
Betaworks founder John Borthwick will become its new chief executive, replacing Mark Williams, who is leaving to join Digg investor Andreessen Horowitz as "Entrepreneur in Residence".
"Both Kevin and I would like to thank everyone who made Digg's journey possible - our amazing community, our talented employees who have developed the site over the past seven years, the many investors who believed in our vision including Greylock, Highland and Andreessen Horowitz, and countless others who have supported us along the way," said Williams.
"As always, send us your feedback and ideas on what keeps you reading and Digging. We'll share all of your feedback with the Betaworks team as they launch the next stage in Digg's future."
In a statement, Rose added: "I've always been a fan of John's product vision and the companies he builds, funds, and advises. John understands the real-time nature of the web and how to capture and surface trends as they occur. Given his experience with bit.ly, news.me and Chartbeat, I can't wait to see what he does with Digg."
The Wall Street Journal estimates that Betaworks has paid just $500,000 (£324,000) for Digg, which would be significantly less than the $45m (£29m) in funds it has reportedly raised to date from venture capital firms.
Following the acquisition, Betaworks intends to launch a new cloud-based version of Digg to complement News.me's iPhone and iPad apps.