Steve Ballmer, Microsoft's chief executive officer, has increased the pressure on Yahoo to hand over control of its search business to his software company.
Speaking in an interview with the Financial Times, Mr Ballmer set the stage for a new showdown nearly a year after Microsoft's first aborted attempt at a full takeover.
However, he ruled out a full acquisition, despite a collapse in Yahoo's share price that has pushed its market value down to $17bn, less than 40 per cent of the amount that Microsoft offered to pay in a mixture of cash and stock last year.
The best time for a landmark search pact between the companies was during the current management transition at both companies, Mr Ballmer said.
"We now have someone in place running our online business, and Yahoo's out looking for a CEO.
"If a search deal is to be made, it's probably to be made in the interim period for new leaders in both places."Bali
Microsoft hired Qi Lu, Yahoo's former search chief, late last year to head its online operations, a move that was seen as a way to smooth any potential deal between the companies.
Yahoo refused to comment.
However, following the harsh criticism he received from shareholders over his failure to agree to a Microsoft acquisition, Jerry Yang, Yahoo's outgoing CEO, has said the internet company would be open to any new discussions about a deal.
Yahoo has been searching for a replacement for Mr Yang since November and is believed to be closing in on a candidate.