New York, Dec. 17 (Reuters): Web search leader Google Inc. is in exclusive talks to buy a 5 per cent stake in Time Warner Inc.’s AOL Internet unit for $1 billion, a source familiar with the matter said on Friday.

A deal would shut out Microsoft Corp., which was seeking its own arrangement.

The news of Google’s bid, first reported by the Wall Street Journal, propelled Google shares to a record high.

Under the terms of the proposed deal, which could close within days, Google would continue to provide AOL with its paid search advertising technology for five years, while allowing AOL to sell display and banner advertising to other Web sites using Google’s ad serving technology.

AOL accounts for 2-4 per cent of Google’s revenue on net basis, analysts have said.

Microsoft had been negotiating to get AOL to use its search technology instead, which would have almost immediately given the software giant a huge presence in its fledgling paid search business.

Google, and to a lesser extent Yahoo Inc., have enjoyed dramatic growth in their search advertising businesses over the past year. The companies generate revenue each time a Web user clicks on text advertisement that run alongside Internet search results.

A deal with AOL would set the stage for Google to expand into display advertising, taking dead aim at Yahoo.