Brad Smith, Microsoft’s top legal counsel told the US Senate that on June 8, he met Yahoo CEO Jerry Yang at the San Jose, Calif. airport and Yang told Microsoft executives that a partnership with Google would isolate Microsoft. Smith, Microsoft’s top legal counsel said Yang is conspiring with Google to freeze Microsoft out of the web search business and turn the market into a duopoly and that it would hurt competition.

Yahoo struck the partnership with Google to ward off an unsolicited bid by Microsoft to buy Yahoo. Search marketers and advertisers are concerned that Yahoo and Google would divvy up the search market and raise prices for advertisers.

“Jerry Yang looked across the table, looked us in the eye and said: ‘Look, the search market today is basically a bipolar market. On one pole there’s Google, and on the other pole there is Yahoo and Microsoft both competing with Google,” Smith said.

“He said if we do this deal with Google, Yahoo will become part of Google’s pole. And Microsoft, he said, would not be strong enough in this market to remain a pole of its own,” Smith said.

Sen. Herb Kohl, D-Wisc., who serves a chairman of the Senate antitrust panel, called Smith’s charge “pretty explosive stuff.” Microsoft has urged regulators and lawmakers to reject the Yahoo-Google partnership.

Yahoo general counsel Michael Callahan said was present at the same meeting but he declined to comment. “I am not going to address Mr. Smith’s characterization of Mr. Yang’s statement,” he said. However, later Callahan said that he did not recall Yang saying what Smith alleged and that he disagreed with Smith’s characterization of the June 8 talks.

Callahan also insisted Yahoo would continue to compete fiercely with Google and that it was not ceding any part of the search market to its chief rival. “This agreement will allow us to do that,” he said.

Under the agreement, Google would handle some queries made over Yahoo’s search service in order to match them with advertisements. The companies would split any resulting revenue.