In an unexpected move, Microsoft has slashed the European prices of its Xbox 360 gaming platform.

According to the company, starting this Friday the Xbox 360 standard version, which included a 20 GB hard drive will cost only 269.99 euros/£199.99, which is means that the console is now with 80 euros/£50 cheaper.

But the standard model is not the only which will be more affordable. The Xbox 360 Elite, which comes with a 120GB hard drive, will have a price of 369.99 euros/£259.99.

But the big surprise is the price of the Xbox 360 Arcade console which costs now onluy 199.99 euros/£159.99 and is now cheaper than a Nintendo Wii.

Xbox Arcade package includes five family-friendly games, a wireless controller, a high-definition multimedia interface (HDMI) connection to enable high-definition output if desired and 256 MB of memory useful for storing games and entertainment content. Unlike the Core version, the Arcade doesn’t have a hard drive.

“Xbox 360 is now mass market in Europe,” said Chris Lewis, Vice President, Microsoft Interactive Entertainment Business Europe. “We have reached and surpassed several key milestones that form part of our long term strategic plan to achieve critical mass in Europe; and our portfolio now offers the kind of mainstream entertainment experiences that secure wider appeal for Xbox 360. These factors allow us to execute on our strategy to widen the market for Xbox 360, as planned,” he added.

Earlier this month Microsoft has started to sell Xbox 360 Arcade in Japan for only 27,800 yen ($260) from 34,800 yen.

Microsoft said it plans to have 1,000 games available on Xbox 360 by the end of the year.

Microsoft’s focus on Europe is not a novelty. Last year in an interview with Bloomberg Aaron Greenberg, Microsoft's group product manager for the Xbox game console business, said Microsoft is determined to “conquer” the European gamers.

“The No. 1 objective is to win on a global basis and that may mean winning some markets and losing others,'' Greenberg said at the time. “Europe is our priority focus right now.''

Also Microsoft announced today that Xbox 360 is the number one next-gen console in EMEA, owning 42% of the market in terms of life-to-date revenue. Also, Xbox 360 continues to enjoy the highest software attach rate of any game console in Europe with more than 7.0 games sold per console (PS3: 3.8; Wii 3.5) after 26 months on the market, Microsoft added.

According to a new study released by Strategy Analytics, the price cuts operated by Microsoft for it Xbox 360 represent a new pressure for Sony.

Sony will be nervous that the PS3's recent sales surge may fizzle out now that the premium Xbox 360 undercuts the PS3 by GBP 40, and the cheapest Xbox model is almost half the price of a PS3," says David Mercer, Principal Analyst. "Sony will be scrutinising the daily sales reports, but will probably try to hold out until later in the year before making its next price move."

According to the latest data released by NPD Group, in January in the US, Sony sold 269,000 PS3s, 5,000 units less than Nintendo Wii, but 39,000 more than Microsoft. Microsoft blamed the figures on its inability to anticipate strong post-holiday demand.

Earlier this month, iSuppli analyst Pamela Tufegdzic predicted that the 2008 will be the turning year for Sony’s PlayStation 3. "2008 will be a turning year for the PS3," said Tufegdzic in an interview with Reuters. "Sony is offering a better forthcoming software pipeline with blockbuster titles like "Gran Turismo 5", which will boost PS3 sales this year."

In fact this is not the first time when iSuppli predicts that PS3 will emerge as the winning gaming console. In a forecast released last month iSuppli estimated PS3 sales will reach 20.3 million units in 2008, up from the 10.3 million sold worldwide in 2007.

However Nintendo Wii, will continue to lead the sales and iSuppli predicted it will overcome Microsoft’s Xbox 360.

According to the data released by iSuppli, Xbox 360 has sold 18.2 million units in 2007, while Nintendo Wii sold only 18 million.

Now as Microsoft decided to start the war of prices it remains to be seen how its competitors will react and if the European price cuts will be followed by similar move in the US.