The NHS has axed a huge licensing deal with Microsoft, originally estimated as being worth £500 million (US$762 million).

The agreement was signed in 2004 with a 12-year lifetime, but in the latest negotiations the parties were unable to reach an agreement. Microsoft insists the NHS uses £270 million of its software each year, having paid "less than £65 million per year" for it.

The cost was set to rise to a £85 million annually as the NHS deploys more technology as a result of the troubled £12.7 billion National Programme for IT.

The decision to end the agreement means that Microsoft has lost one of its largest licensing deals - nearly 900,000 NHS users had access to the systems. It is not known whether recent Microsoft licensing changes also played any part in the decision.

The Department of Health has written to NHS trusts to inform them of the news. Trusts will need to negotiate directly with Microsoft for operating system and server system licences.

A letter from Connecting for Health, the agency that runs the national programme, says that "individual local organisations will be responsible for all aspects of funding, purchase, and management of Microsoft licences", website E-Health Insider reported.

A Department of Health spokesman said the government has "already invested so that NHS Trusts are able to have access to the latest versions of Microsoft desktop software". Trusts are still understood to have access to Office 2010 and Windows 7.

A government white paper issued this week suggested local trusts would gain more control over IT decisions as centralised spending is reduced. The Department of Health said today that future investment decisions "will be taken at a local level in line with the proposals" from that paper.

Responding to the loss of the licensing deal, a Microsoft spokesperson said that "much of the Microsoft investment into health research and development and the NHS is as a result of the NHS agreements in place over the last 12 years".