Competition Commissioner Neelie Kroes said on Wednesday millions of European consumers would benefit from being able to choose their browser and the decision would encourage web companies to innovate.
Microsoft will allow users to select from among 12 browsers including its own Internet Explorer, Mozilla's Firefox, Apple Inc's Safari and Google Inc's Chrome on more than 100 million old and new PCs from mid-March, 2010.
Browser makers Google and Opera, which filed the original case, welcomed Wednesday's decision and Opera's share price rose sharply, gaining more than 3 percent.
We think this is an important victory for the web,. Opera's Chief Technology Officer Hakon Wium Lie told Reuters. This means Internet users in Europe will have a genuine choice. It feels good. It's been two years of hard work for us.
The decision averted another penalty for Microsoft, which has been fined 1.68 billion euros ($2.4 billion) by the European Commission for previous antitrust infringements.
Microsoft said it was pleased with the result of the case.
Analysts said they did not expect rivals to dent Microsoft's market share, despite consumers getting a choice of browsers.
Anything that makes browsers easier for consumers to know about will ultimately help them (companies). But this will require somebody that cares enough to go through the extra step of installing a competing browser, said Neil MacDonald, a vice-president at research firm Gartner.
I don't expect a monumental shift in browser market share.
Microsoft's Internet Explorer has about 56 percent of the browser market, with its closest competitor Mozilla's Firefox on about 32 percent.
The EU executive said Microsoft's legally binding pledge addressed its concerns in January that the company may have breached EU antitrust rules by bundling its Internet Explorer web browser with its dominant Windows operating system.
Microsoft will also give computer makers the option to turn off Internet Explorer or install a rival browser, the Commission said. The commitments will be valid in the European Economic Area for five years.
Microsoft shares were up 1.2 percent at $30.40.
The Commission also welcomed Microsoft's pledge to improve interoperability between third-party products and several Microsoft products, including Windows, Windows Server, Office, Exchange and SharePoint.
The Commission said it would monitor the impact of the software maker's undertaking on the market and take its findings into account in the pending antitrust investigation regarding interoperability on a complaint by industry body ECIS.
Kroes said she was very optimistic Microsoft's undertaking could resolve her concerns and she could close the case.
As we've said before, we are embarking on a path that will require significant change within Microsoft, Brad Smith, Microsoft's general counsel said in a statement. Nevertheless, we believe that these are important steps that resolve these competition law concerns.
ECIS members include IBM, Nokia, Oracle Corp and Sun Microsystems.
(Editing by Sharon Lindores and David Holmes)