The European Commission's competition talks with Microsoft have collapsed, European Competition Commission Mario Monti said today.

In a statement read out to journalists Monti said that despite strenuous efforts by Microsoft to meet the European Commission's concerns, a settlement of the case "has not been possible".

"Therefore we will propose next Wednesday that the Commission adopts a decision," the competition commissioner said.

Monti added that a precedent-setting legal ruling is in the best interest of consumers and competition.

"We made substantial progress towards resolving the problems but were unable to agree on commitments [Microsoft must make] for future conduct," Monti said. "The public and competition would therefore be better served by a decision setting a strong legal precedent which establishes clear principles for a company that is so dominate in the market."

In response to questions, Monti said that setting a strong precedent is "of key importance”. By setting a legal precedent in the current antitrust case against Microsoft, the Commission will make it easier to pursue Microsoft in future antitrust cases, he said.

The Commission is already examining a complaint by Microsoft rivals that the latest version of the Microsoft operating system, Windows XP, is abusing its dominance in the market.

"Other cases [against Microsoft] exist or are on the horizon [and they bear] remarkable similarities to issues raised in the current antitrust case due to conclude next Wednesday," Monti said.

Other issues the Commission is investigating is how Microsoft sells its music and video playing software program Media Player and the company's current practice of bundling the program with its Windows operating system. The Commission is expected to require that the software giant sell two versions of Windows to PC manufacturers: one with Media Player and one with the program stripped out.

Also under question is server interoperability. It is understood that the Commission wants to force Microsoft to share enough secret Windows code with rivals so that they can design server software that works as smoothly with the ubiquitous operating system as Microsoft's own server software.

Microsoft was not immediately available to comment on Monti's statement but it is understood to be preparing a statement for release later Thursday.