Microsoft has stated that the firm is not looking to buy Yahoo but is keen on collaborating on internet search.
Microsoft chief executive Steve Ballmer said "we are done with all acquisition discussions with Yahoo" at the firm's annual general meeting.
Yahoo rejected Microsoft's $47.5bn (£32bn) bid and later rebuffed an offer for the search engine alone.
But the resignation of Yahoo co-founder Jerry Yang earlier this week prompted renewed hopes over a possible tie-up.
Mr Yang faced stiff criticism of his management of the firm which has seen the firm's shares slide sharply.
On Wednesday Yahoo shares ended more than 20% lower to end at $9.14 - its lowest in more than five years.
The value of the company has dropped more than $30bn since the offer was rejected earlier in the year.
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