SAN FRANCISCO -- America Online agreed to sell a 5 percent stake to Google in a $1 billion deal that deepens the ties binding two of the web's most popular sites while thwarting Microsoft's efforts to grab a larger piece of the booming Internet advertising market.

Approving the expanded alliance had been considered a mere formality since last Friday when AOL's corporate parent, Time Warner, abruptly ended several months of negotiations with Microsoft, which had hoped to supplant Google as AOL's main advertising partner.

Many of the details, including a plan that may display more graphic ads on Google's traditionally sparse web pages, had been leaked to the media in the last few days. None of the so-called banner ads will appear on Google's home page or alongside its primary search results.

There was one significant new twist in Tuesday's official announcement: Users of AOL's leading instant messaging service will be able to communicate with the users of Google's 4-month-old service.

Google's aggressive courtship of AOL illustrates how seriously it regards the looming threat posed by Microsoft as the world's largest software company eyes the lucrative field of online search -- a specialty that Google has so far dominated to emerge as a corporate powerhouse in its own right.

"This is a very big deal for us, something I have wanted to do for a long time," Google CEO Eric Schmidt said during an interview Tuesday.

AOL accounted for about $420 million, or 10 percent, of Google's revenue during the first nine months of this year.