Sony today slashed the price of its PlayStation 3 games console in Japan by a fifth in an effort to ensure the machines competes with cheaper rivals when it is launched there in November.

The announcement comes just days after Microsoft announced an external HD DVD player for its Xbox 360 console. The move effectively matches the Xbox's specifications with the those of the PS3, which will be fitted with Sony's Blu-ray DVD technology - a component that has boosted the PS3's price and has proven difficult to manufacture.

Sony will cut the price of its basic PlayStation 3 model in Japan to ¥47,600 yen (£214), from an originally planned ¥59,800 - undercutting the combined basic Xbox 360 and HD DVD player in Japan, which will cost ¥49,600.

However, there are no plans to cut the price in the UK. The highest specification 60GB PS3 is expected to cost £425 when it eventually hits British shelves in March, double the cost of an Xbox 360 starter kit.

The success of the PS3 in the £15 billion console market is seen as crucial to Sony's fortunes, but the machine has been hit by a series of delays and has been criticised for being much more expensive than competing products from Microsoft and Nintendo.

Earlier this month, Nintendo announced it will launch its next-generation game console, the Wii, on December 8 in the UK and confirmed that, at £179, the machine will be significantly cheaper than other next generation consoles.

Console makers have been prepared to make losses on new machines to capture market share and profit from software sales later in the product's lifespan.

"What is important is that we get more consoles sold to make up for the price cut and get more game makers and chip makers in our camp," Ken Kutaragi, head of Sony’s game unit, told Reuters at the Tokyo Game Show earlier today.

Mr Kutaragi also introduced clips from the 20 or so games that will be available when the PS3 is launched in Japan, but sounded a cautionary note on the games industry, suggesting it has "been relying too heavily on easy to sell sequels, and our users have become passive".

The PS3, which features a specially developed high-speed processor as powerful as that in many PCs, poses a new test to the games industry, he added. "You might say the PlayStation 3 is overkill," he said. "This is a period of challenge."

In April, Sony posted a 68 per cent rise in full-year operating profits to ¥191.2 billion (£935m) but hopes that the Japanese electronics-to-media group could finally be staging a concerted recovery were overshadowed by concerns over larger than expected costs for the launch of the PS3.

At that time it said it expected its games division to rack up an operating loss of ¥100 billion (£456,000) this financial year amid spiralling PS3 costs. That hit is expected to cut operating profits in half - to ¥100 billion - from last year.

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