OnLive, an online video gaming company, will begin streaming games over the internet within a few months after it secured substantial funding.

Analysts said that if OnLive’s technology worked as promised, the service could pose a challenge to console makers Nintendo, Microsoft and Sony.

OnLive, which plans to launch its service in the United States this winter, aims to stream online games which are hosted and run on remote servers. This is known in the industry as a “cloud-based” service.

Generally, players have games software installed on the hard drive of their personal computer or on a games console.

The company says its technology will provide on-demand, lag-free access to games — even high definition, graphic-rich titles — that can be played on any TV using a microconsole or nearly any PC.

The service potentially undermines the business of console makers, high-end graphics chip makers and video game retailers.

Its latest round of funding was backed by AT&T Media Holdings and Lauder Partners.

Time Warner unit Warner Bros, Autodesk and Maverick Capital, which were earlier investors, also participated in the new round of capital raising.

OnLive would not reveal the sum raised but Steve Perlman, its founder and chief executive, said it was a “large investment at a large valuation,” especially for a company that is still to take a dollar of revenue.

The company, based in Palo Alto, California, has raised $16.5 million in previous funding.

The capital will pay for OnLive to install and run data centres to handle user demand around the US.

It expects to use five data centres on launch day.

Analysts said the inclusion of AT&T with its networking and telecommunications expertise gave OnLive a significant partner. It has also signed nine video game publishers, including Electronic Arts, Ubisoft, and Take-Two Interactive Software.

The company started testing the new service last month. Mr Perlman, a well-known Silicon Valley entrepreneur who helped launch WebTV, which Microsoft bought in 1997, said “hundreds of thousands” of people had signed up to participate in “beta” tests of the service.

He said: “Our projections have changed. Our projections originally for the first year were less than the number of people that have so far signed up for beta. So I guess we underestimated.”

Sceptics have said that streaming online games will not work for most people as the broadband connections would be too slow to make the experience comparable to playing games on consoles.

OnLive has said would anyone with a 1.5Mbps connection should be able to run the service at standard definition.

It said 5Mbps would be required for high definition content.

The company has declined to say how much OnLive will charge users, who will pay on a subscription basis.

Other companies are also looking at streaming video games.

Intel recently invested in a new high definition games-on-demand service called GameTree.tv developed by TransGaming, which is due to launch in spring 2010.

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