US Internet company Yahoo today rejected software giant Microsoft's three-week ultimatum to  accept a takeover offer, but left the door open to a higher bid.

'We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders,' Roy Bostock, chairman of Yahoo's board and Jerry Yang, its CEO,  said in a letter to Steve Ballmer, Microsoft's CEO.

'Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo,' the letter went on to say.

The letter came in response to an ultimatum issued by Microsoft  on Saturday for Yahoo to accept its $44.6 billion takeover offer in three weeks or face a hostile battle for the support of the Internet giant's shareholders.

In an open letter to the Yahoo board of directors, Ballmer accused the company of avoiding serious negotiations over its unsolicited February 1 bid and warned that any further delays could result in a less attractive offer for Yahoo.

Despite the tough language of today's latest rejection, Yahoo left itself open to a new and higher offer from Microsoft.

'We are open to all alternatives that maximise stockholder  value. To be clear, this includes a transaction with Microsoft if it  represents a price that fully recognises the value of Yahoo on a standalone basis,' the Yahoo letter said.

'We are steadfast in our commitment to choosing a path that  maximises stockholder value and we will not allow you or anyone else  to acquire the company for anything less than its full value', it added.

On March 18 Yahoo said the company was worth at least $40 a share, compared to Microsoft's original offer of $31 a share. The higher figure would add some $10 billion to the cost of the deal for the buyer.