Europe's antitrust chief has sent the strongest signal yet that Microsoft faces heavy financial penalties after the software giant failed to include a "browser choice" screen for European users in the latest version of Windows 7.

In an interview with the AFP news agency, European Competition Commissioner Joaquin Almunia reportedly said that fault had been admitted and said the European Commission needed to "react," suggesting heavy fines were on the way.

"The fault is there, it has been there for more than a year and it is clear that we need to react," he said, adding: "It is not only the distortion of competition during this period which concerns us; it is very serious, from my point of view, that the remedies imposed on Microsoft have not been applied."

He added that it would be easier for European authorities to progress in its investigation "if a company which has broken competition rules recognizes the fact."

Europe can impose fines of up to 10 percent of a company's global annual turnover. For Microsoft, it could be up to $7.37 billion (5.7 billion euros) based on 2012 figures.

On July 17, the European Commission said it would open an antitrust investigation into the software giant after the executive body had received complaints that Microsoft was not carrying out its obligations to provide users' with a choice of browser.

Microsoft swiftly apologized for failing to include the browser choice update in Windows 7 with Service Pack 1 because a "technical error" missed out the update in February 2011 in store shelf copies of the operating system.

An estimated 28 million users may not have been given the option to choose their choice of browser after the browser choice update was omitted.

The software giant received a record $1.2 billion (899 million euros) fine in 2008 after Microsoft refused to provide crucial compatibility information to rival developers needed to make applications work with the operating system.

"While we believed when we filed our most recent compliance report in December 2011 that we were distributing the [browser ballot] software to all relevant PCs as required, we learned recently that we've missed serving the [browser ballot] software to the roughly 28 million PCs running Windows 7 SP1," the company said.

Microsoft pre-emptively included the browser choice update in Windows 8, set for an October 25 launch, in a bid to appease European authorities, despite the operating system has yet to be released.

This story was first published as "Microsoft faces EU fine over browser choice 'error'" at ZDNet's Between the Lines.