European regulators have moved a step closer towards taking action against Microsoft, after an internal review concluded that the US software group had breached competition law.

However, the so-called "devil's advocate panel" set up by the European Commission to review its case against Microsoft raised concerns over some concessions the Commission is seeking. The conclusions of the panel, which met last week for the first time in an antitrust case, leave European Competition Commissioner Mr Mario Monti with the final choice of whether to take a tough line against Microsoft.

Mr Monti is believed not to have made up his mind and a decision is not expected until June at the earliest. A Commission decision to impose tough penalties on Microsoft might spark a political backlash in the US, where the company settled an antitrust case over similar allegations in 2001.

The Commission and Microsoft declined to comment yesterday.

The case team is believed to have concluded that Microsoft broke European competition law by trying to use its dominant position in operating software, through Windows, to win a strong share in markets for servers and video-playing software. However, the panel is understood to have raised concerns over the concessions to be imposed on the US company.

In a draft decision, the case team has recommended that Microsoft provide rivals such as Sun Microsystems with technical information on its servers large computers used to access the internet. It also recommends a separation of Media Player, Microsoft's video-playing software, from Windows.

Microsoft has strongly opposed both concessions, saying they would damage the company and that they went well beyond the US settlement.