Microsoft is planning to cut the price of its Xbox 360 games console in the US to take on Sony's newly reduced PlayStation 360, executives for the company said at the E3 games conference in Santa Monica, California.

The most expensive Xbox retails at $479 (£235) and is firmly in the same price bracket as Sony's machine after the Japanese group cut the PS3 to $499 from $599 this week in an effort to boost lacklustre demand only eight months after the console's US release.

Microsoft announced last month that it would take a charge of more than $1 billion after identifying hardware problems with the Xbox consoles.

Shane Kim, the vice-president of Microsoft Game Studios, said today ahead of the E3 conference, at which games companies unveil new products, that the company needed to lure female and family-oriented customers who are not interested in the traditional beat-em-up or race games

"We need to compete effectively for that customer and part of that is getting to the mass market price point for the console,'' he told Bloomberg. ``We definitely are working on that area.''

He ruled out a price cut this week but Microsoft said today that it would launch an upgraded version of the Xbox in Europe, the Xbox Elite, on 24 August, and this could provide it with the platform for a price cut of the older version.

In a statement the company refused to rule out a future price cut, saying only: "We have no announcements to make on pricing at this time."

Both the Xbox 360 and the PS3 far more expensive than Nintendo's market-leading Wii, which retails for about $250, is still quickly being sold out in US stores as new shipments arrive and is outselling its rivals by at least 2-1.

The continuing price differential means that Sony's discounting, which had widely been expected by analysts, although perhaps not so soon, is far more of a threat to the Xbox than the Wii, especially because Microsoft's powerful machine is a year older than Sony's and comes fitted with a next-generation Blu-ray DVD player.

Microsoft executives at E3 acknowledged that reaching a "mass market price point" for the Xbox is crucial for its success.

However, that will put a strain on margins at Microsoft's games division, which lost about $1.3 billion last year on sales of $4.3 billion.

As a marker, Sony is estimated to be losing about $200 on every PS3 sold; Nintendo is estimated to be making a $50 profit on each Wii.

By this time in the Xbox 360's lifespan — the machine was released in November 2005 — Microsoft would have hoped to be approaching a profit on the Xbox 360.

That plan that could be scuppered by a damaging price war.

Microsoft has sold about 5.5 million Xbox 360s in the US since its launch, according NPD Group, the market analyst.

Since November, Sony has sold about 1.4 million PS3s. Nintendo has sold more than 2.8 million Wii machines in the same period.

In two related announcements, Microsoft said that it had done a deal with Walt Disney to offer its films on the Xbox Live platform, and that it would release a new, simpler controller for the Xbox in an attempt to appeal to younger players.

The announcement was seen as a response to the success of the Nintendo Wii, which has attracted large numbers of people who would not traditionally consider themselves gamers with its motion-sensitive controller.

Microsoft shares have fallen 1.8 per cent this year.

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