The deal helps clear the way for the mega-merger of MCI and another US telecommunications group WorldCom.

The merger is subject to approval by US and European competition authorities who are concerned about the share of the Internet that a merged MCI and WorldCom would control.

Under the deal Cable and Wireless will take over MCI's "Internet backbone", the core network of their service.

Richard Brown, Cable and Wireless chief executive said: "This transaction catapults us into a leading role in the World League of Internet and data traffic carriers.

"It gives us the scale and scope we need in the United States to match our leading role in the rest of the world."

Cable and Wireless will take over MCI's 1,300 Internet Service Provider customers in 76 countries.

The business has assets of around $100m (£61m) with a projected turnover of $220m (£134m) in 1998.

The announcement saw shares in Cable and Wireless slip 1.5p to 677.5p at 1100 BST (1000 GMT).

Earlier this month Cable and Wireless announced turnover for the year to March 31 of £7bn with pre-tax profits of £2.1bn.

AT&T talks denied

Cable & Wireless chief executive Dick Brown denied reports that the company had been in discussion with US operator AT&T about an alliance he said the deal would make the group more attractive to potential partners.

"There is no question that this makes us stronger and more capable and I guess you'd have to conclude it makes us more beautiful. There is no 'For Sale' sign over this company but I don't think there's anybody with an appetite for hooking up with a company with high growth and globalness that can overlook us," he said.