Microsoft has agreed to make 25,000 pages from the British Library's archive available online.

The world's largest software developer is to make an initial investment of $2.5 million in the scheme, as the first part of a long-term project that will begin with 10,000 books being scanned and made accessible over the net.

The British Library already has an online gallery website, where users can digitally browse 14 "great works" including sketches by Leonardo and examples of Jane Austen's early work. 

Analysts said the partnership was a bid by Microsoft to make up lost ground in its rivalry with Google.

Google has already forged deals with Harvard, Stanford, the University of Michigan, Oxford University and the New York Public Library and unveiled its online library service this week.

The internet search and advertising company said the initial collection would include "public domain" works - those without current copyright protection.

"Because they’re out of copyright, these cultural artefacts can be read in their entirety online at http://print.google.com, where anyone can search and browse every page," Google said in a statement.

"They are fully searchable and users can save individual page images."

However, Google today found itself accused of damaging the fundraising efforts of a London children's hospital, which has relied for more than 75 years on royalties from J M Barrie's Peter Pan.

The Great Ormond Street Hospital Children’s Charity is angry that Google's policy of making literature freely available online will hit the hospital's finances hard, potentially costing it millions of pounds.

Barrie donated all British royalties and performing rights from the work, including popular stage version widely performed at Christmas time, to the hospital in 1929.

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