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Under the 10-year deal, currently active only in the US and Canada, Yahoo adds sponsored search results from Google alongside its own unpaid-for search results. Yahoo expects to generate between $250m (£126m) and $450m (£227m) from the venture within its first three years of operation.

However, Microsoft countered that the partnership would allow Google and Yahoo to control nearly 90% of the North American search ad market.

Bradford Smith, senior vice-president and general counsel of Microsoft, said: "If search is the gateway to the internet, and most believe that it is, this deal will put Google in a position to own that gateway and the information that flows through it.

"When Yahoo talks about this deal generating up to $800m in additional revenue, that's money out of the pockets of American businesses, big and small, who will pay higher prices for the very same ads they buy from Yahoo today."

Smith, referring to a meeting on 8 June with Yahoo chief executive Jerry Yang, said: "Yang looked across the table, looked us in the eye and said: ‘Look, the search market today is basically a bipolar market. On one pole there's Google, and on the other pole there is Yahoo and Microsoft both competing with Google.'"

Michael Callahan, executive vice president and general counsel for Yahoo, said: "I am not going to address Mr. Smith's characterization of Mr. Yang's statement."

Referring to rebel Yahoo shareholder Carl Icahn's attempt to force Yahoo back to the negotiating table with Microsoft on several occasions this year, after it rejected the latter's takeover attempts, Callahan said: "Our priority is to build value for stockholders. What we will not do, however, is allow our business to be dismantled or sold off piecemeal on terms that would be disadvantageous to Yahoo stockholders and to the market as a whole."

David Drummond, senior vice-president and chief legal officer for Google, said: "Microsoft has a long history of abusing and extending its dominant positions through anti-competitive practices. For years, Microsoft has been working to leverage that lock-in onto the more open world of the internet."