Most of the world's PCs use Windows

The software giant said the new system, named Windows XP Starter Edition, would go on sale in Asia in October.

The company said the cut-price software was designed for "first-time desktop PC users in developing countries".

The move is seen as a response to Linux, a free-to-use system with a strong following in poor countries.

Competitive threat

Analysts say Linux poses a growing threat to Microsoft's dominant Windows operating system, used on more than 90% of the world's computers.

A so-called 'open source' system which PC users can install on their machines and modify without paying a licence fee, Linux has made significant inroads into the software market in Latin America and Asia.

Earlier this year, computer giant HP began shipping computers equipped with Linux to China and India.

Linux is also championed by Microsoft critics who say the firm's dominance of the global software market makes computer systems more vulnerable to potentially disabling viruses.

Microsoft's new software - dubbed "XP Lite" - will feature lower resolution graphics and limited options for networking computers together.

It will also limit users to running three programs concurrently - a far cry from the full version of XP, where the only practical limit comes from the speed of the computer and the size of its memory.

It will be available initially in Thailand, Malaysia, Indonesia and two other as yet unspecified Asian countries.

Microsoft said it hoped the new software would also help deter consumers from buying pirated versions of its XP system, widely available in many Asian countries.