Sony is introducing a cut-price version of its PS3 console for £299 this Wednesday, with a smaller 40GB hard drive and no backwards compatibility with its previous consoles.
It is also slashing the price of the current 60GB model from £425 to £349.
The company denies the move is in response to lower-than-expected sales of the PS3 in Europe, but admits some customers found the initial price too expensive.
The new, cheaper PS3 will be unable to play PlayStation 1 and 2 games, has two USB ports instead of four and no slots for memory cards.
It brings it into line with the price of Microsoft's Xbox 360 Elite, which has a 120GB hard drive but unlike the PS3 does not include a Blu-ray drive.
More than 5.5 million PS3 consoles have been shipped worldwide, compared with more than 10 million each of the Nintendo Wii and Xbox 360.