Microsoft Corp. (MSFT) was ordered to separate its instant messaging service from its Windows software and allow rival products on its system in South Korea after losing an antitrust case on Wednesday.

The U.S. software firm, which was also fined about $32 million, said it would appeal the decision by South Korea's Fair Trade Commission (FTC) but did not plan to make good on a threat to withdraw its Windows operating system from the country.

The ruling, which resembles a 2004 European Commission decision, held Microsoft breached antitrust laws by selling a Windows version that incorporated its instant messaging software.

"Windows' Media Server, Media Player and Internet Messenger services were blocking competition and leading to a monopoly in the market, as well as raising the entry barriers to PC server and operating system makers, hurting the interest of consumers," said FTC Chairman Kang Chul-kyu at a news briefing.

Analysts said the ruling would have limited ramifications beyond South Korea.

"Every government has its own rules for antitrust that are in many ways very different from each other," said Dion Wiggins, vice president of tech consulting firm Gartner in Hong Kong. "It is more of a frustration for developers than anything else."

The decision would benefit smaller rivals who used Linux-developed software by delaying the release of new versions of Windows in South Korea and could increase costs for software developers offering Korean-tailored products, analysts said.

Microsoft was ordered to introduce a version of Windows that allows embedding of products of other software makers, while separating its Media Server from the operating system.

The FTC also fined Microsoft 33 billion won, the largest fine imposed on a foreign firm by the commission, and ordered it to unbundle its Messenger and Media Player from Windows. It gave the firm six months to comply with the ruling.

"We were very disappointed with the commission's decision because we believe the case has no basis in law or in facts," Thomas W. Burt, deputy general counsel of Microsoft, said in a telephone interview. "We will be appealing the decision and we are very confident we'll ultimately win that appeal."

Unlike in the European Commission case, South Korea would ban Microsoft from selling the existing version of Windows.

In late October, Microsoft threatened to withdraw Windows from South Korea if it was ordered it to unbundle its Instant Messenger and Media Player from the operating system.

"We do not believe that this remedy will require Microsoft to withdraw Windows from Korea," Burt said in a separate interview with Reuters Television.

The FTC began a probe into Microsoft more than four years ago after allegations raised by South Korean Internet portal Daum Communications Corp. The FTC pushed on with the investigation even after Daum and U.S.-based RealNetworks Inc. (RNWK) settled with Microsoft this year.

Microsoft agreed in October to pay RealNetworks $761 million to settle an antitrust suit accusing the software giant of using its dominance to promote its own media player. Microsoft also reached a $30 million settlement with Daum Communications in November.

The U.S. software giant is also challenging a 2004 decision by the European Commission, which found the U.S. software company used near-monopoly power to muscle out rivals.

Brussels fined Microsoft and ordered it to make available a version of Windows without Windows Media Player.