The battle for troubled software company iSoft has hotted up, with Australia's IBA Health increasing its offer to £166m, trumping a rival offer from CompuGroup, of Germany.

iSoft, which has a multimillion pound contract to update the NHS computer systems, is based in Banbury.

The group said it would hold an auction if CompuGroup ups its offer in response.

Isoft has been looking for a buyer since it ran into delays and cost overruns with the National Programme for IT (NPfIT), which aims to update NHS patient record-keeping.

The company has issued profits warnings and last August posted annual losses of £382.2m.

IBA Health had offered £132.3m in May, saying the deal would "create one of the biggest providers of healthcare information globally in a growing market".

Then Germany's CompuGroup offered £160m last month.

Isoft said it had adjourned shareholder meetings scheduled for August 31 to discuss the CompuGroup offer. It has contacted the Takeover Panel to consider the terms of an auction.

It said in a statement: "If the competitive situation continues to exist, the board expects the panel to announce the terms and timing of such a procedure in due course.

"The board will make its views on the CompuGroup and IBA offers known to shareholders following resolution of the competitive situation between them."

IBA Health's new 69p a share offer is a quarter higher than the price of iSoft's shares last October, before it put itself up for sale.

IBA chief executive Gary Cohen said he was confident about winning the support of CSC Corporation, the US company responsible for delivering most of the NHS's £12.4bn IT upgrade. iSoft is carrying out a slice of the work for CSC.

The American company previously stepped in to block IBA from buying iSoft but subsequently withdrew its opposition.