The European Union (EU) threatened to slap a fine of $7.4bn on Microsoft for its breach of a 2009 agreement where the company had agreed to provide users with a choice of Internet browsers.
The Commission had launched an investigation into the matter in July and now preparing to formally slap charges against the company.
European Union antitrust chief Joaquin Almunia said Microsoft has not kept its promises.
"We will have to consider taking the next step in this case," Almunia said.
"The next step is to open a procedure to determine a breach to our settlement. Since Microsoft has admitted it, I hope it will not take long."
Microsoft was allegedly not offering the browser ballot screen it had committed to offer in all its versions of Windows, which is a pop-up screen to allow users to opt for their browser of choce.
Microsoft has over a decade-long battle with the EU and has also paid fines totalling over $1.28bn.
In 2009, the EU had signed an agreement with Microsoft, while in July, Microsoft admitted that it had not integrated a browser-choice screen due to a technical error and tried to finding a remedy to fix the problem.
According to EU, if Microsoft was found to be guilty of violating agreement signed in 2009, it would have to pay fines up to 10% of its turnover.
Microsoft however maintains that it is keen to avoid more regulatory problems, has blamed the technical glitch for the latest the latest difference with EU watchdog.
Further, EU is negotiating with search engine giant Google on a probable agreement over suspected antitrust exercises in its Internet-search business.
"For the last three months, we’ve been in technical talks to find a possible settlement. It will be possible if Google offers remedies to our original concerns," Almunia said.
"I hope we succeed in these talks as the legal road takes much longer and this is a fast moving market."
