The price cut was widely anticipated following Microsoft's decision to slash the cost of the Xbox in the UK to �199 just five weeks after it was launched.

Sony's PlayStation 2 leads the market

There has been widespread concern about how it is selling around the world, although Microsoft has been secretive about giving away figures.

It did report that 1.5 million were sold in the US by the end of 2001.

There are also fears the Xbox is not selling well enough in Japan, one of the most lucrative territories for games consoles.

The price in Japan will drop from 34,800 yen (�187) to 24,800 yen (�133) from 22 May, a 29% decrease.

Newcomer

Games fans will no longer have the simple choice of going for the cheapest option between the Xbox and PlayStation 2 and instead will look to their capabilities and games range.

The Nintendo GameCube is the baby of the market and has been pitched at a lower price.

Two weeks before its European launch in May the price was dropped to �129.

Nintendo said it had been pleased with the initial sales.

The next stage in the console wars will be the introduction of online gaming and which company can make it a reality first.

It is expected both Sony and Microsoft will unveil plans at the E3 games conference being held in Los Angeles in May.

There are also talks of companies looking seriously at slashing the price of games.