Oct. 3--Google and Yahoo are delaying a controversial deal that would allow Google to sell advertising on Yahoo's Web sites, the companies said Friday.

Yahoo said in a statement that the companies have agreed to a brief delay in order "to continue our ongoing discussions with the Department of Justice." Google issued a similar statement. Neither company would say how long they had agreed to wait.

Yahoo announced the deal in June as an alternative to selling its search business to Microsoft. The Sunnyvale company estimated the deal with Google would generate an extra $250 million to $450 million in additional operating cash flow per year.

The agreement was intended to help boost Yahoo's sagging stock price. When it was announced June 12, Yahoo closed at $23.52. Battered by continued turbulence in the U.S. financial markets, Yahoo on Friday closed at $16, down 32 percent. Google closed at $386.91.

The deal has been heavily criticized by advertisers, who fear it will lead to higher prices for search advertising and help Google dominate the online advertising market.

In a Sept. 4 letter to the Justice Department, the Association of National Advertisers, a leading trade organization representing 9,000 brands, said it knows of "only one advertiser/marketer that does not object to the proposed Google-Yahoo collaboration."

The American Antitrust Institute also weighed in last month with a letter advising the government to "insist on a

consent decree which preserves Yahoo's incentives to remain in the paid search market."

On Thursday, U.S. Sen. Herb Kohl, D-Wis., the chairman of the antitrust committee, sent a letter urging the department to continue to monitor the Internet advertising industry regardless of the outcome of its investigation.

"Even should you conclude at present that this deal is not contrary to antitrust law, the Department must be sure that this deal never in the future crosses the line into an unacceptable, anti-competitive collaboration among competitors which will harm consumers and advertisers," Kohl wrote.

The critics appear to have caught the ear of the Department of Justice. Sandy Litvack, one of the department's former antitrust chiefs, was hired to handle the investigation, sending a signal that the government could be preparing to challenge the agreement.

Google and Yahoo have insisted that the deal is misunderstood. Both companies launched micro Web sites containing "facts" about the deal.

But they have differed on whether they should delay implementation. In a conversation with reporters, Google Chief Executive Eric Schmidt said "time is money in our business."

On its site, Yahoo noted that Google wanted to move ahead even if the regulators hadn't made a decision. But Yahoo said it had no such plans.

"We carefully set out a voluntary review period with the Justice Department and have no plans to implement before that period has ended," Yahoo said.

Contact Elise Ackerman at eackerman@mercurynews.com.

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