The Norwegian government has rejected Microsoft in favour of Linux.

According to reports, the government will not be renewing its contract with the US software giant, even though it will lose discounts of up to 20 per cent on public sector buys (that amounted to roughly $27.8m last year) as a result.

Norway's minister of labour and government administration, Victor Norman, said the move would make it easier for other software companies to compete for public agency business.

"The use of open source codes, such as Linux, could promote competition," Norman said.

The move will be a blow for Microsoft, which has up to 95 per cent of Norway's public sector market for word processing programs and about 60 per cent of the market for server programs and operating systems.

"There is no doubt that all monopolies press prices and get customers to buy more expensive solutions than they would if there had been real competition," Norman said.

The writing was on the wall for Microsoft after the Norwegian government complained that new licensing rules could force users to buy upgrades they didn't need, sharply increasing costs.

Microsoft Norway, however, insists it is not worried. But Brynjar Skauvik, its acting director, said the public sector represented about 30 per cent of the group's sales in the Scandinavian nation of four-and-a-half million people.

"We welcome the competition," he said. "It is not very dramatic."

Kai-Ove Nauen, project advisor to the minister of administration, said that failing to renew the contract - which expires at the end of November - did not stop government departments buying Microsoft programs.

He denied that this was a crusade against Microsoft, but added that it was simply to prevent a monopoly situation.