The European Union is slapping a $1.23 billion fine on U.S. chipmaker Qualcomm for abusing its market dominance in the lucrative sector.

EU Commissioner Margrethe Vestager said Wednesday San Diego-based Qualcomm "illegally shut out rivals from the market" for more than five years by paying key customer Apple on condition it would not use chips made by Qualcomm's rivals.

Vestager said Qualcomm paid "billions of dollars" to Apple.

"Qualcomm's behavior denied consumers and other companies more choice and innovation — and this in a sector with a huge demand and potential for innovative technologies," Vestager said.

She added that payments were not only price reductions but also had the condition that Apple iPhones and iPads would exclusively use Qualcomm chips.

Qualcomm is the world's largest supplier of baseband chipsets, which are used for voice and data transmission in smartphones, tablet computers and other mobile devices.

The fine represents 4.9 per cent of Qualcomm's 2017 turnover.