In a 207-page document of facts established at the 76-day trial, Judge Thomas Penfield Jackson said Microsoft's actions had harmed consumers and that the US software giant had used its power to punish competing firms.

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The judge's "findings of fact" - released on the internet at 2330 GMT - are the first stage of his ruling in a complex legal battle, which could lead to serious sanctions against Microsoft.

"Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," the judge wrote.

"The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest," he added.

The US Justice Department and 19 US states had charged Microsoft, the world's biggest software company, with abusing its monopoly power in order to sell more copies of its own internet browser and damage the business prospects of the rival Netscape Navigator browser.

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But Microsoft argued that, although its Windows operating system runs on 90% of the world's personal computers, it did not act as a monopoly and instead benefited its customers by giving them additional features at no extra cost.

One of the issues on which the judge took Microsoft to task was its pricing behaviour.

Judge Jackson noted that one of Microsoft's own studies from November 1997 confirmed that the company could have charged only $49 for an upgrade to Windows 98 and still remained profitable.

However the study found that the company had sufficient power within the market to charge the "revenue-maximising" price of $89, the judge said.

'Substantial harm'

The Justice Department hailed Friday's ruling as a "tremendous victory" for US consumers.

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Assistant Attorney-General Joel Klein said that Microsoft's abuse of monopoly power had caused "substantial harm to consumers and innovation" and should result in "serious remedial redress".

But a spokesman for the states who joined the action, Connecticut Attorney-General Richard Blumenthal, went further, saying that Microsoft should face far-reaching sanctions.

A Microsoft spokesman said the company disagreed with many of the findings and vowed to continue to vigorously fight the case.

Bill Gates: We're quite confident that Microsoft's integrity will be upheld

The company's founder, Bill Gates, called the judge's findings "part of a long process that's been going on for some time".

He said: "We hope we can find a way to resolve this and put it behind us.

"We think there has certainly got to be a way to resolve it that is fair to Microsoft, fair to the government and most of all fair to consumers."

Microsoft shares fell to $88 3/16 in after-hours trading on Friday compared with a closing price of $91 9/16 during the normal market hours.

This is not the end of the case, as the judge will not make a final determination of who has won the case for several months.

The two sides will have one month from Friday's finding of fact to issue their "conclusions of law" as to how it relates to US anti-trust law.

Only then, probably in the first three months of 2000, would the judge issue his "ruling of law", stating whether Microsoft was guilty of violating competitive practices.

Legal experts say that the most likely outcome is an out-of-court settlement - and that Judge Jackson's ruling on Friday gives Microsoft a strong incentive to seek such a solution.

The BBC's John Moylan looks back on the trial issues

It would also be at that stage that the judge would go on to consider remedies, such as restrictions on Microsoft's activities or even breaking up the company - which might come in a separate hearing next spring.

Microsoft is the world's biggest company by market value, worth $470bn on the Nasdaq stock market.