Internet search majors Google Inc and Yahoo Inc are on way to terminating their search deal amidst an ongoing regulatory review and fears expressed by advertisers that the partnership would lead to higher advertisement rates.

Google, reports said, is weighing plans to pull out of the deal as the government has put difficult conditions to avoid harming competition in the market for online advertising.

The two companies, which had, earlier this month, decided to delay implementing the controversial deal, struck in June, are likely to terminate the deal by the middle of next week, media reports quoted sources close to the development as saying.

Google and Yahoo have so far failed to convince the regulator, the US Department of Justice, on the legitimacy of their online advertising partnership.

The deal allows Google to sell advertising for some of Yahoo's online advertising space. Google and Yahoo together owned more than 80 per cent of the internet search market in August.

Yahoo said the partnership with Google will help strengthen its competitive position and deliver better quality for advertisers, publishers and users. Google also complemented the deal saying it would drive competition, but it did not elaborate.

Yahoo also said it has no exclusive deal with Google and the deal covers only sites in the US and Canada.

"We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process," Google said in a statement.

Yahoo struck the search deal with Google to fend off an unsolicited takeover bid by Microsoft Corporation.

The deal allows Yahoo to earn revenue by placing Google ads alongside its search results. Yahoo's cash flow could grow by $250 million to $450 million in the first year of the deal, according to the companies' own admission.

Yahoo, meanwhile, is reported to be in talks with Time Warner Inc for acquiring the content and advertising operations of AOL.

The Google-Yahoo deal has been opposed by advertisers as well as Microsoft, the world's largest software maker, saying a deal between the two companies would hurt competition and raise marketing costs for companies.

Mountain View, California-based Google  handled 63 per cent of US online search ads last month, while Yahoo ranked second with 20 per cent, followed by Microsoft with 8.5 per cent.

The online advertisement market is expected to grow 17 per cent to over $26 billion this year.