Microsoft has sold hundreds of millions of pounds of programs like Windows and Office to more than 20,000 British schools, making its software the most widely-used in the UK education system.
But a report by Becta, the British Educational Communications and Technology Agency, has warned schools against buying Microsoft software unless the company "urgently" reduces its prices.
It will be forwarding its "value for money concerns" to the Office of Fair Trading.
Becta said 70 per cent of schools and colleges did not realise how much it would cost them to buy perpetual licenses for the software. Many schools and colleges - 55 per cent - said the payments were difficult for them to afford.
Becta strongly warned schools against buying Microsoft's major new products, Vista and Office 2007 yet, saying they offered few essential features and exacerbated the "digital divide". The report said it would cost Pounds 160million to deploy Vista in schools, and pound;167m to deploy Office 2007.
Dr Stephen Lucey, Becta's strategic technologies executive director, advised care, "as the costs are significant and the benefits currently unclear".
The report said Microsoft was "inappropriately" charging schools according to the number of computers in the school - even when the computers were 10 years old and too antiquated to run the software being licensed. Further education colleges and private companies, by comparison, could get better licensing deals based on the number of students or staff.
Steve Beswick, Microsoft's director of education, insisted the company's solutions offered "real value for money" and free support and training.
"It is important to note that schools don't make any purchasing decisions based solely on cost," he said. "It is about quality and value for teachers and pupils."