The model, which includes a 20 GB hard drive, will sell starting today for $299 instead of $349.

Also, Microsoft unveiled an upgraded version of Xbox 360, which features a 60 GB hard drive and will go on sale in early August for $349.

Besides the new 60 GB version, Microsoft will continue to sell the Xbox 360 Arcade version, which comes with a 256MB memory unit and five Xbox LIVE Arcade games for $279 and the premium Xbox 360 Elite console that includes a 120GB hard drive for $449.

Albert Penello, Xbox director of product management at Microsoft, explained that the new version was introduced to meet the demand of the customers for more storage space.

“No one device offers the depth and breadth of entertainment that Xbox 360 can deliver, and now you'll have three times the storage to manage all that great content,” he said.

Last time when Microsoft slashed the price of its console was last year in August before the release of its iconic game, Halo 3.

In the past few months, there were various rumors about an upgraded version of Xbox 360, including some reports about an external Blu-ray unit, but it seems like Microsoft is decided to concentrate on its Xbox Live service as a distribution channel for HD content.

However, despite Microsoft’s announcement, Sony is decided to keep the “most expensive gaming console” label for its PlayStation 3. While Microsoft will sell its Xbox 360 for $299, Sony executives are determined to keep the $400 price tag for PS3, which includes a 40 GB hard drive.

Since the beginning of the year, Microsoft’s Xbox 360 registered poor sales in the United States, being almost constantly outsold its rivals, PS3 and Nintendo Wii.

That’s maybe the reason why Sony officials said won’t consider a price cut for PS3, at least for this year. PlayStation 3 was released in November 2006 in Japan and US and the gaming console is being currently sold for $400 in US.

Instead, as Sony CFO Nobuyuki Oneda said the company wishes to make its console more profitable. In a report released last month, Forbes said that Play Station 3 has cost Sony an incredible $3 billion, mainly because of the company’s pricing strategy for the product.

As PS3 hit the market, Sony wanted to recover some of the market share that Microsoft’s Xbox 360 had gained, mainly due to its launch a year before PS3’s. Sony thought that by selling its consoles at a price that would be a little less that their actual cost, it might gain more market share and it would be able to use it to make profit for the company from exclusive gaming titles and sales of its patented Blu-Ray. However, Sony has managed to win the Blu-ray versus HD DVD battle due to its PS3.

What is more, after enough units would have been sold, production cost would have dropped, and Sony would have ceased to sell PS3s at a loss. Even though the PS3 console seems to have gotten a few very good exclusive titles recently, and has shown signs of recovery during the past months, it is still a long way to go until Sony will be making a decent profit out of it.

With Microsoft’s Xbox 360 going for $299, (or $349 for 60 GB version), Sony’s PS3 is the most expensive console on the market.

Bloomberg News reports that speaking about this issue, Sir Howard Stringer said in an interview that Sony won’t lower the price of its PS3 and he added that a price reduction by Microsoft would be evidence that the Xbox 360 was falling behind in the contest for sales.

Instead, it seems like Sony will also focus on releasing new game titles for PS3 in order to boost the sales.

Few weeks ago, Nintendo officials made a similar statement, saying that no price cut for their successful Wii are considered for this year.