The free programs will be based on Microsoft Works

The online versions of the programs will lack many of the features found in the full versions found in Microsoft's Office suite of applications.

Although the programs will be free to use, Microsoft is planning to fund them via advertising.

The move is seen as a rebuff to Google and others which already offer free versions of these types of programs.

Online fight

The free programs are likely to be based on Microsoft's Works software suite that is often installed on low-cost home PCs.

No date has been set for when the free programs will show up on the net but the software giant told the Reuters news agency that it was "considering" new distribution and payment models for its software.

Like many others Microsoft has already started experimenting with web-based services. Windows Live lets people create a personal page that brings together many of the things they do online such as read news feeds, blogs and deal with e-mail.

There is also a beta version of a WYSIWYG writing tool for writing blog posts.

Microsoft's Office suite dominates the business market but the software giant has had more competition of late as rivals produce and release free versions of programs that do the same job as those in the package.

For instance the Open Office project offers free versions of programs that are very similar to those found in Microsoft Office.

In addition, Google now owns the Writely online word processor and earlier this year started offering an online spreadsheet.

Many other smaller hi-tech firms run web-based versions of the applications people use in business or on their home PC.

Microsoft's Office suite is hugely successful for the company and currently about 25% of the company's revenue is generated by sales of it. A new version of Office is due in 2007.