Microsoft has ended more than a decade of wrangling with European Union regulators by agreeing to let Windows users surf the web using rival applications.

From the spring, European web users running Windows 7, XP or Vista who have Internet Explorer as their default browser will be presented with a "ballot screen" that will offer them a dozen alternatives to choose from, including Mozilla Firefox, Google Chrome and Apple's Safari.

Under a five-year agreement, anyone buying a new Windows-based PC will see the same screen, meaning tens of millions of consumers could switch.

Neelie Kroes, the European commissioner for competition policy, greeted the move as an early Christmas present for consumers.

But it is a major blow for Microsoft. The rise of broadband internet access means applications such as word processors or spreadsheets no longer need to reside on a computer, and can instead be run online, with documents stored virtually.

This makes the browser a vital gateway to the next generation of applications, relegating the PC operating system where Microsoft remains dominant.

"Web browsers have gained strategic importance as they have become the gateway to an enormous range of online services both for businesses and consumers," said Kroes. "This decision therefore has the potential to foster the development of platforms for applications which will rival existing ones and therefore offer consumers choice and variety.

"Now – for the first time in over a decade – internet users in Europe will have an effective and unbiased choice between Microsoft's Internet Explorer and competing web browsers. It is as if you went to the supermarket and they only offered you one brand of shampoo on the shelf, and all the other choices are hidden out the back, and not everyone knows about them. What we are saying is that all the brands should be on the shelf."

A dozen browsers – including Internet Explorer – will appear on the pop-up ballot screen, with the top five listed prominently. Exactly which applications will be present depends on market share data, but Microsoft has been testing the screen since October and it has included Safari, Chrome, Internet Explorer, Firefox, Opera, AOL, Maxthon, K-Meleon, Flock, Avant Browser, Sleipnir and Slim Browser.

Brad Smith, senior vice-president and general counsel at Microsoft, said: "Under this resolution, Microsoft commits that PC manufacturers and users will continue to be able to install any browser on top of Windows, to make any browser the default browser on new PCs, and to turn access to Internet Explorer on or off."

Since it was created 14 years ago, Microsoft has been packaging Internet Explorer with its Windows operating system. As the system has become dominant – Windows is used on more than nine out of every 10 PCs – so has Internet Explorer, which now has more than 60% of the global market.

The way Microsoft used to bundle products such as its media player or browser with Windows, and prevent rivals from ensuring their competing applications were fully interoperable with its products, has been at the heart of legal battles on both sides of the Atlantic.

In the late 1990s, Microsoft fought what became known as a "browser war" with Netscape, whose Navigator application dominated the market before Internet Explorer was released. Microsoft used its Windows customer base to effectively shut Netscape out of the market and in 1998 the US department of justice accused it of stifling competition.

The department initially suggested splitting Microsoft in two, and the case was not settled until 2004.

That same year, the EU ended a five-year investigation by condemning Microsoft for illegal abuse of its near-monopoly, ordering it to remove its digital music player from the Windows operating system and slapping a fine of nearly €500m (£333m) on the firm.

Since then it has accused the company of abusing its position by preventing rivals from linking with its software , which last year led to a record €899m fine. Microsoft is still appealing that decision but this deal effectively ends the EU's investigation.

Microsoft also agreed to give developers access to technical documentation needed to build products that work well with Microsoft's Windows, Windows Server, Office, Exchange and SharePoint.