The European Commission has rejected a key part of Microsoft's plan to comply with sanctions.
Microsoft is under growing pressure to speed up compliance with EU laws
The Commission imposed sanctions on Microsoft last year for violating anti-trust laws, ordering it to choose a monitor to oversee future compliance.
The Commission has now accused Microsoft of trying to limit the monitor's work, vetoing certain areas.
Microsoft however said it believed it was fully complying with the Commission's requirements.
Microsoft was fined a record $654.9m (497m euros) last year after the Commission judged it had abused its monopoly in the computer software market.
The Commission ordered Microsoft to sell a version of its Windows software package without audio-visual functions and to share information with rival manufacturers of the computer servers which are used to operate computer printers.
It also ordered Microsoft to choose a non-partisan individual to monitor compliance.
"We have officially informed Microsoft that their proposal on the monitoring trustee is not acceptable," Commission spokesman Jonathan Todd told Reuters on Wednesday.
"Essentially they wished to have a veto on what issues the monitoring trustee could examine."
Microsoft has ten days in which to respond and the Commission ultimately has the power to impose its own terms on the monitoring process if it deems Microsoft's response unsatisfactory.
Microsoft said it believed the Commission was wrong in its interpretation of the company's actions.
"We are fully committed to complying with the Commission's decision," said company spokesman Dirk Delmartino.
"All the proposals we are sending to the Commission we believe are in line with the decision."
However, Mr Delmartino added that the issue was "complex" and the company was "happy to look at the feedback".