In an effort to win big government and institutional contracts when up against Linux, Microsoft is prepared to draw from an internal slush fund and offer its software at steep discounts or even for free, says a published report.

According to Thursday's online edition of the International Herald Tribune, then top Microsoft sales executive Orlando Ayala, sent an email last July authorising senior managers to draw from a special fund in order to win contracts where the company looked likely to lose against open source Linux.

"Under no circumstance lose against Linux," the IHT quoted Ayala's email as saying.

Microsoft representatives in the UK declined to comment on "leaked or speculated internal documents" but did issue a statement saying that "the issues raised in the [IHT] story touch programs that the company has adopted to make technology available to customers at low prices".

At the time the email was reportedly sent, Ayala was the third executive at Microsoft, in charge of sales and marketing, but has since been transferred to lead a new business focused on small and medium-size companies, the paper said.

While Linux has a tiny share of the desktop software market compared to Microsoft's massive 90 percent contribution, the cheap, open source alternative does have a growing portion of the server software market, and has been gaining attention with governments looking to shift to what some see as a more stable, low-cost option, particularly in emerging markets.

The report also details other aggressive strategies reportedly employed by the company, such as offering discounts on the hourly rates for its corporate consulting services and covertly collecting information on competitors.

The tactics, if true, could potentially run the company further afoul of government regulators, which have been pursuing Microsoft for years over its dominance in the PC software market.

Late last year, after Ayala's email was sent, Microsoft finally reached a settlement with the US DOJ (Department of Justice) to loosen its grip on the desktop software market by sharing some source code, unbundling products and taking a more even-handed approach to competitors.

The EU (European Union) is also scrutinising the company and has generally stricter antitrust laws than the US. Huge discounts given by a dominant software provider could potentially violate EU antitrust laws, the IHT speculated.

Representatives for Microsoft in the UK would not comment on possible EU regulatory action in light of the report, saying only that the company continues to work constructively with the EU for a resolution of its case.