Google has warned that Microsoft's proposed takeover of Yahoo could stifle internet development and extend monopoly power.

David Drummond, chief legal officer at Google, warned that the deal could result in unacceptable market dominance in which the combined companies take the lion's share of instant messaging and web email accounts.

"Microsoft's hostile bid for Yahoo raises troubling questions. Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the internet that it did with the PC?" he said.

"While the internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies and then leverage its dominance into new adjacent markets."

Drummond added that Microsoft and Yahoo are the two most visited portals on the internet, and that Microsoft has used a monopoly position in the past to push its own software.

However, Brad Smith, general counsel for Microsoft, believes that the merger is needed to stop Google's market dominance.

"Google has amassed about 75 per cent of paid search revenues worldwide and its share continues to grow," he said.

"According to published reports, Google has more than 65 per cent search query share in the US and more than 85 per cent in Europe.

"Microsoft and Yahoo, on the other hand, have roughly 30 per cent combined in the US and approximately 10 per cent combined in Europe."

Concerns have also been raised about the cost of the deal. "The $44.6bn price is 'full, rather than silly'," said David Mitchell, senior vice president of IT research at research firm Ovum.

"The addition of Microsoft's engineering capability into Yahoo should allow the combined entity to bring new products and services to market more quickly, something that Yahoo has notably struggled with.

"Meanwhile, Yahoo's online engineering capabilities will undoubtedly offer Microsoft the potential to bring new services to market, which counters the undermining efforts that Google is pushing forward."