The price of the Xbox games console has been cut for the third time in Europe in just over a year.
The Xbox: now cheaper than ever
The 20% cut means an Xbox will cost about £129.99 (199 euros).
The cut means that the console is the same price as the Nintendo GameCube and cheaper than Sony's Playstation 2.
Sony and Nintendo have yet to say whether they will respond with price cuts of their own.
The cut that cheers
Competition for European customers among console makers was fierce before the cut and looks set to intensify now.
Microsoft launched the Xbox in Europe in March 2002 and put it on sale for £299 (479 euros).
We will continue to be aggressive in driving increased European market share
Nintendo's GameCube went on sale in May 2002 at £129 (199 euros) but the price has steadily come down as retailers attempt to shift the backlog of consoles on their shelves.
Despite the successive cuts, Sony retains a commanding lead among the console makers.
In the fight for second place, the Xbox is narrowly ahead of the GameCube, with Microsoft saying it has sold two million consoles in Europe so far.
"We had a great Christmas and firmly established ourselves as the number-two console player in this region," said Microsoft's Peter Moore.
"This price change shows we are not content to rest on our laurels. We will continue to be aggressive in driving increased European market share."
Shortly before the price cut was announced American man was sentenced to five months in jail for selling chips that helped gamers to bypass anti-piracy technology on consoles.
David Rocci had pleaded guilty in December to conspiring to import, market and sell modification, or mod, chips for the Xbox.
Mr Rocci also received a $28,500 fine and five months of home detention with electronic monitoring when he was sentenced in a Virginia court last week.
He was convicted under the controversial Digital Millennium Copyright Act, which makes it a crime to distribute tools that can be used to bypass copyright controls on digital products.
The harshness of the sentence for selling devices that allowed people to modify their own equipment has raised concerns among civil liberties groups.