Industry sources say that the internet company, best known for its Google search engine product, is working on the creation of a number of new web tools and has poached former Microsoft staff to help with development.
The internet company, which recently launched a partial IPO, has launched Gmail and bought blogging firm Blogger, showing it is inclined to create or buy its own web tools rather than rely on those already out there.
A story in the New York Post sparked the rumours about the possible development of a new web browser, which Google has declined to comment on.
However, analysts believe the move is highly likely. James Governor, a principal analyst at Red Monk, has said he would be surprised if Google was not working on an open source browser technology likely to be based on Mozilla like Netscape before it.
The talk is supported by recent hires at Google. Four people have recently been recruited from Microsoft to work at Google, one of which is understood to be Adam Bosworth, who was instrumental in the early development of Internet Explorer.
Internet Explorer came from behind in the late 1990s to usurp internet browser pioneer Netscape, which was once the market leader but is now used by few web users.
Joe Beda, who was previously on the team working on Longhorn -- the next version of Microsoft's operating system -- was also recently taken on by Google.
The spectre of a strong rival comes at a bad time for Microsoft's web browser, which is currently being plagued by security problems.
Firefox, an alternative browser owned by Mozilla, is proving an increasingly popular alternative to Explorer. Mozilla emerged from what was AOL's work on Netscape.
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