Microsoft has cut the price of its Xbox games console in the US by 10%, following a similar reduction in the cost of the PlayStation 2 by rival Sony.
The Xbox has sold about nine million units
It is the latest salvo in a console price war between Microsoft, Sony and Nintendo in the battle for the wallets of gamers.
The software giant announced the reduction to $179.99 at the Electronic Entertainment Expo game show in Los Angeles, known as E3.
Sony cut the price of the PlayStation 2, (PS2), from $199 to $179 earlier this week ahead of the June launch of a redesigned console with a bundled network adapter for online gaming.
The PS2 has outstripped its competitors by a wide margin, with more than 50 million sold worldwide.
The real battle is for second place, with Microsoft and Nintendo having sold about nine million each for the Xbox and GameCube.
The latest round of price cuts has taken many by surprise, as both Sony and Microsoft had suggested they had no plans for a reduction.
But the drop in the cost of the PS2 announced by Sony had left the Xbox as the most expensive console in the US.
"Our commitment to the consumer is to offer the best system at the best price with the best selection of software," said Robbie Bach, Chief Xbox Officer at Microsoft.
The $179 retail price for the Xbox took effect immediately.
However Sony's redesigned PS2, which includes the equipment needed for online gaming, is still expected to sell for $199.
Nintendo's GameCube remains the cheapest console in the US, retailing for $149, and the company has played down the possibility of a price cut.
"I really don't think there is an urgent necessity to cut the price," said Nintendo President Satoru Iwata.
Retailers in the US had been pushing for price cuts to boost software and hardware sales, though most were expecting to see a drop of $50, rather than $20.
It is unclear whether the price cuts will be reflected in Europe or Japan.