The European Commission is issuing formal charges against Intel, the world's biggest chipmaker, alleging abuse of its dominant position against smaller rival Advanced Micro Devices (AMD).

Following a seven-year investigation, the commission has sent Intel a statement of objection outlining its concerns.

The details of the charges have not been made public, but the company has been accused in the past of paying retailers only to stock computers containing its chips. If found guilty, it could face fines of up to 10 per cent of its annual global revenues - equivalent to $3.2bn (£1.6bn) in 2006.

AMD gained market share in 2005 and the first half of 2006, but suffered a downturn in the second half of the year following a price war.

'We await the European Commission's public description of its apparent decision to charge Intel with illegal monopoly practices that harm consumers — as well as Intel's response,' said a spokesman for AMD.

The US Federal Trade Commission dropped an additional investigation about Intel's marketing practices in 2000.

'We are confident that the microprocessor market segment is functioning normally and that Intel’s conduct has been lawful, pro-competitive, and beneficial to consumers,' said a spokesperson for Intel.

'The evidence that this industry is fiercely competitive and working is compelling. When competitors perform and execute the market rewards them. When they falter and under-perform the market responds accordingly.'