The US justice department has urged a New York court to reject Google's controversial deal with authors and publishers that would allow the search engine giant to create a massive online digital library.

The department said in a filing last Friday that the court "should reject the proposed settlement in its current form and encourage the parties to continue negotiations to modify it so as to comply with... copyright and antitrust laws."

The filing was to a New York court considering settlement of a 2005 class action lawsuit. In that suit, authors and publishers had accused Google of copyright infringement for scanning libraries full of books.

The proposed settlement, which was reached last October, would establish a registry to pay authors for works in Google's book search.

The department said it had not finished its investigation but said that there was a "significant potential" that the division would eventually decide the settlement broke antitrust law.

In a statement, Google, the Authors Guild and the Association of American Publishers said the Department of Justice filing "recognises the value the settlement can provide by unlocking access to millions of books in the United States.

"We are considering the points raised by the department and look forward to addressing them as the court proceedings continue."

The department noted that the "settlement appears to give book publishers the power to restrict price competition" and would give Google "de facto exclusivity" in distribution of orphan works, books which are in copyright but the rights holder cannot be located.

It said the settlement allows the Book Registry to license these works and to then distribute the money.

The department indicated that ongoing talks with Google - which were characterised as "very constructive" - could lead to changes that would make the settlement acceptable.

"We'll see if they come to fruition," the official said.