The console was launched in 2005

From 14th March, the 20 gigabyte hard drive model will cost 270 euros, a drop in price of 80 euros.

In the UK, the entry level machine, which does not come with any hard drive, will cost �159.99, �40 less than the current price.

The price drops mean that the versions of the console are now cheaper than both of its competitors - the Nintendo Wii and Sony's PlayStation 3 (PS3).

Sony's 40GB console currently retails for �299.99 compared to �259.99 for Microsoft's top level machine - the Xbox 360 Elite, which has a 120GB drive.

The Nintendo Wii currently retails for �180 in the UK.

Microsoft said that the price of the entry level machine had been chosen because historically it was "the price point where a console's audience begins to expand".

The Xbox 360 has been losing ground to both of its competitors recently, despite having launched earlier.