Google has lost a high-profile contract to power searches for Amazon.com, the world's largest online retailer, to Microsoft.

The agreement marks a significant victory for Microsoft's next generation Windows Live search system, but comes amid signals that Google is upping its lobbying efforts in Washington and Brussels in an effort to prevent Microsoft advancing in the search market.

Windows Live will form a major part of Microsoft's strategy to compete with younger rivals such as Google and Yahoo by providing services over the web.

The technology behind the project will now power Amazon's A9 search unit and to search the amazon.com site after a previous contract with Google expired.

Details of the new contract have not been released, but Microsoft has said it regards the agreement as an important opportunity to build awareness of the Windows Live brand.

The large search engines - Google, Yahoo! and Microsoft - have been willing to pour huge sums into ventures that let them promote themselves to potential users in the lucrative and expanding paid-search advertising market .

In paid-search advertising, clients pay search engines to have their websites appear at the head of a list of results when certain key worlds are typed in.

Google has a significant lead in the sector, accounting for 49 per cent of the American search market, the world's largest, in March, compared with just 11 per cent for Microsoft, according to Nielsen/Net Ratings.

However, Google has voiced concerns that Microsoft could leverage its dominance of the software market to squeeze the search leader.

The next version of Internet Explorer, available now in test form, includes a box in the corner of the screen that lets people perform an internet search without going to a separate web page.

Google has told US and European antitrust regulators that it is concerned that Microsoft’s own search engine is getting favoured treatment in the browser and has claimed that research shows it is prohibitively difficult to change the settings in the new browser to a rival search engine.

"The market favours open choice for search, and companies should compete for users based on their quality of search services," Marissa Mayer, Google’s vice president of search products and user experience, said.

However, Internet Explorer’s main competitors, Firefox and Opera, both include similar boxes with the default search engine set to Google - a feature for which Google pays.

Google said it has talked about the browser feature with the US Department of Justice and European Union regulators, although it has not filed any formal complaints.

Microsoft fought a long-running antitrust case with the Justice Department, and is awaiting a ruling on its appeal of an EU antitrust ruling against it.

In both cases, competitors claimed that the company was using the dominance of its Windows operating system to wield influence over other markets.

IE 7 will be shipped with the next version of Microsoft’s Windows operating system, and also will be available for free download.

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