The European Commission and South Korea, both of whom have been at loggerheads with Microsoft for years, were concerned the company would dent competition because the inclusion of its own software with Vista would put people off buying rival products.
After speaking to top EU antitrust chief Neelie Kroes on Thursday, the company said it made changes to its Internet, fixed document format and security software in Vista, while Korean consumers would get a unique version of the system.
"Microsoft agreed to make each of the changes that the Commission advises us today," the company's top lawyer, Brad Smith, told reporters on a conference call.
"Having made these changes, the company and (Microsoft Chief Executive) Steve Ballmer feel comfortable moving forward, feel confident that we are in compliance with our EU competition law obligation."
The Commission, the EU's executive, said it recognised that Microsoft had made the changes to Vista, but declined to comment on whether it was satisfied, reiterating it was not up to the EU executive to give Vista a green light.
But Kroes, attending a competition conference in Italy, sounded upbeat.
"They promised they would behave and take into account our rules and regulations. Well, I'm a happy woman," she told Reuters.
The Commission also said it would closely monitor the effects Vista had on the market and any complaints relating to it.
Microsoft said the changes to Vista would remain regardless of the outcome of its appeal against a years-long antitrust case in which the Commission in 2004 levied a record fine of close to half a billion euros (almost 340 million pounds).
South Korea too found the company guilty of anti- competitive behaviour in December 2005, a ruling that Microsoft is again appealing.
Shares in the company closed up 5.3 percent at $28.37 in New York, having hit $28.69 earlier in the day, their highest in almost a year.
GOOGLE, ADOBE, MCAFEE
The European Commission was worried the operating system would package features such as an Internet search function like Google Inc.'s and software similar to that of Adobe Systems Inc.'s "pdf" fixed document formats.
The "bundling" of such software in an operating system run on more than 90 percent of all PCs may create a disincentive for customers to then buy products from Adobe or Google.
Security software companies such as McAfee Inc. and Symantec Corp. said Microsoft was preventing them from creating effective products by not cooperating with them sufficiently while developing its own programmes.
Microsoft said it would create additional codes called APIs to give rivals access to the operating system's core and thus enable them to write effective security software.
It said consumers would be able to set their default Internet search programme using whichever engine they wanted. It would also submit its own fixed document format software to a standards-setting organisation and revise licensing terms.
Adobe said it welcomed the changes and looks forward to hearing more specific details. A Symantec spokesman added the world's biggest security software maker was encouraged, but questioned when the changes would happen.
"We haven't actually seen anything yet in terms of the technical information we would need to address our concerns," Symantec spokesman Chris Paden said.