The US government yesterday called for Microsoft, the world's largest software company, to be broken up in a proposal likely to have enormous consequences for the future of the industry.

The department of justice and most of the 19 US states that brought the landmark legal case against the company agreed that splitting Microsoft into two parts was the only way to prevent further abuses of its monopoly position. One part of the new company would be based on the Windows operating system, the other would incorporate everything else.

Legal experts and analysts said the plan, if backed by a US judge, would be as significant as the break-up of Standard Oil in 1911 or that of AT&T, the US telephone monopoly, in 1984.

Bill Kovacic, a law professor at George Washington university, said: "This case will define the rules by which dominant firms must play."

Microsoft has been damaged by the case, even though an actual break-up might never happen. The company's stock market value has almost halved this year and Bill Gates, the company's founder, has seen his net worth shrink from over $100bn to about $60bn.

Judge Thomas Penfield Jackson, who has ruled that Microsoft had broken the law, is to hear its case before announcing his decision later this year.