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The two companies initially agreed to place Google advertising beside 3% of Yahoo's search results as part of a "pilot" scheme which ran for two weeks. According to sources quoted in the Wall Street Journal, analysts have predicted that a broader outsourcing agreement with Google could net Yahoo around $1 billion a year.

However, many commentators have claimed this is just another effort by Yahoo to pile pressure on Microsoft to increase its $44.6 billion bid, citing the regulatory complications surrounding any deal between Yahoo and Google.

The Journal also reports that Yahoo is keeping its options open, with sources apparently telling the paper that the search company could simply pull out of its deal with Google should a deal eventually be struck with Microsoft.

Earlier in the week Steve Ballmer gave Yahoo's executives three weeks to respond to its buyout offer before taking it directly to the board, a threat Yahoo subsequently called "unproductive" and one of its major shareholders described as a "blunder".

Spokesmen for Google and Yahoo declined to comment.