The EU has fined US microchip supplier Intel €1.06 billion for paying its customers to keep a competitor out of the market in what amounts to the biggest EU antitrust fine in history.

"Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years," competition commissioner Neelie Kroes said, announcing the decision on Wednesday (13 May).

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"If we smell that there is something rotten in the state, we act."

European Commission investigators established that Intel - which makes the x86 microprocessor found in most home computers - in 2002 to 2007 created a complex system of rebates to encourage computer manufacturers Acer, Dell, HP, Lenovo and NEC to exclusively use its hardware.

The California-based firm also gave German consumer electronics chain Media Markt financial benefits for stocking Intel chip-using PCs.

Intel's main competitor, Advanced Micro Devices (AMD), also of California, alerted Brussels to the problem back in 2000. Intel's internal documents - seen by the commission - identified AMD as a threat.

Brussels on Wednesday also demanded that Intel rein in its current rebates schemes to fit the law. "The commission will be monitoring compliance closely," Ms Kroes said.

The fine amounts to 4.15 percent of Intel's €28 billion worldwide turnover. It also damages the company's reputation, painting it as a predator on consumers and an enemy of innovation.

Intel CEO Paul Otellini has promised to appeal the ruling in the EU courts in Luxembourg.

"We do not believe our practices violated European law," he said in a statement published an hour after Ms Kroes' press conference. "The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence."

AMD welcomed the fine, calling Intel an "abusive monopolist." The Brussels-based consumer welfare group, BEUC, has also asked the commission for help in bringing a collective court action to compensate computer buyers.

"It is not acceptable that such a number of consumers suffer damages and have no way to obtain justice," BEUC director Monique Goyens said.

Under EU law, any international company that operates in the single market must abide by its rules.

Intel is to pay the €1.06 billion fine within three months into a blocked bank account, pending the result of its appeal. If it loses, the fine and interest accrued will flow into the EU's general budget.

The fine is the biggest in EU history, following the previous record of €899 million against US software manufacturer Microsoft.

The sum is roughly equivalent to what Cyprus receives from the EU budget each year.

The Intel ruling comes after the commission in the current recession tolerated major EU state-aid grants to the banking and car manufacturing sectors, blunting Ms Kroes' reputation as a guardian of EU competition law.

The Dutch commissioner is reportedly seeking a second term in Brussels.