The European Commission stepped up its regulatory battle with US software firm Microsoft yesterday by issuing a warning about its new operating system Vista.

The warning signals a threat of new legal action against Microsoft, which already faces a possible €2 million per day fine in a separate legal dispute with Brussels. The commission said it is worried that Microsoft plans to bundle various software packages, such as internet search or security, into its new operating system. It fears this behaviour could harm competing firms that offer similar software separately.

"The commission's concern is that computer manufacturers or consumers may be prevented from having a proper choice between software packages," said a commission spokesman, who confirmed that competition commissioner Neelie Kroes had written to Microsoft chief executive Steve Balmer to express concern about Vista.

Microsoft's new operating system Vista is the proposed new version of its Windows operating system, which is found on 90 per cent of the world's computers.

It is anticipated that Microsoft will bundle various software functions into Vista, such as security, internet search and a new system to allow people to create PDF documents. The commission said there was no formal investigation into Vista but that it expected Microsoft to react to concerns.

This latest announcement by the commission was made a day ahead of arbitration hearings in Brussels today to determine if Microsoft should pay a daily fine of €2 million set by the EU for its alleged failure to comply with its previous antitrust ruling.

This ruling in 2004 found that the US company had abused the dominance of its windows operating system and fined it nearly half a billion euros.