Mr Bill Gates, chief executive and founder of Microsoft, offered to pay the marketing costs of his Internet rival, America Online, to win its support against Netscape Communications, according to an internal email released yesterday.

Mr Gates told Mr Steve Case, America Online's chief executive, that he was prepared to "fund some of their marketing" even though the two companies were competing head-to-head in online services.

America Online (AOL) eventually agreed to abandon Netscape, the Internet software pioneer, to work exclusively with Microsoft in exchange for a prominent position on computer screens run by Windows, the operating system which drives more than 90 per cent of personal computers.

The email emerged on the seventh day of the US government's landmark antitrust trial of Microsoft, accused of abusing its monopoly power to dominate the market in Internet software and crush its rival, Netscape.

Mr David Colburn, AOL's senior vice-president of business affairs, told the court how his company feared that Microsoft's rival service, the Microsoft Network (MSN), would undermine its business because of its prominent position on Windows "desktop" screens.

"You have to remember MSN had gone out and said publicly: We are really going after your own market," he said. "There were articles in the papers saying it was inevitable MSN was going to take over from AOL and the Internet was going to eat AOL's lunch."

In his written testimony, Mr Colburn said: "AOL was willing to agree to virtual exclusivity with Microsoft - something to which AOL would not otherwise have agreed - because AOL believed that inclusion in the Windows operating system and on the desktop was essential to mitigate, at least partially, the adverse competitive effects of Microsoft's bundling of MSN with its operating system."

AOL signed its agreement with Microsoft in March 1996, which placed a link to AOL in the Windows online services folder.

The company now says it fears Microsoft is attempting to undermine that agreement by introducing new software which guides computer users to connect to the Internet.

Microsoft yesterday sought to undermine AOL's argument that the agreement entirely excluded AOL's customers from using or downloading Netscape software. Mr John Warden, Microsoft's lawyer, showed the court Internet pages accessed via AOL. The pages advertised offers to download Netscape's browser, a rival to Microsoft's software which allows users to read information from the Internet.