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Microsoft has made a dramatic offer for its online rival Yahoo!, the computing giant has confirmed today.

The technology firm said it had made an offer of $31 (£16) per share - a total equity value of about $44.6 billion (£22.3 billion) – for the search engine and email provider.

Microsoft says it has written to all Yahoo! shareholders offering them the option of cash or a fixed number of Microsoft shares.

The bid ups the stakes between Microsoft and Google in the fight for dominance in the online technology world.

In a measure of its determination to push the deal through, Microsoft says it has offered Yahoo! shareholders a 62 per cent premium above yesterday's closing Yahoo! share price.

"We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," said Steve Ballmer, chief executive officer of Microsoft.

"We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."

Ray Ozzie, chief software architect at Microsoft, added that Yahoo! has played a "pioneering role" in the growth of the internet by "building compelling, high-scale services and infrastructure".

"The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own," he said.

Microsoft says that it can save about $1 billion (£0.5 billion) by combining resources and sharing experience of the marketplace, highlighting the importance of working together in developing new ideas for mobile and video platforms.

"Microsoft has developed a plan and process that will include the employees of both companies to focus on the integration of the combined business," the company said, adding that it intends to offer "significant retention packages to Yahoo! engineers, key leaders and employees across all disciplines".

Amid inevitable fears of a monopoly being created, Microsoft says it is confident such a merger would "receive all necessary regulatory approvals" and predicts the move would be completed by the second half of the year.