Parental control

"As families gather together this Christmas, it's the perfect time to launch a family orientated Xbox 360 package that plays games, video and music," said Stephen McGill, head of gaming and entertainment for Microsoft UK.

The console will come bundled with five games, which were previously only available from its Xbox Live online service.

It will also feature family settings to allow parents to control what their children watch and play, he added.

The Arcade replaces the Core model of the console which had the same price tag but was not bundled with games.

It does not have the hard drive found on more expensive Xbox models but will have a memory card for saving progress in games.

Industry watchers will see the move as an attempt to gain ground on Nintendo.

In the UK, the Wii became the fastest-selling console ever, shifting one million units in just 38 weeks.

In comparison, the world's best selling console, the PlayStation 2, took 50 weeks to reach one million in sales. The Xbox 360 took 60 weeks.

In the first half of 2007, Microsoft sold 122,565 units of the Xbox 360 in Japan, compared with 503,554 PlayStation 3 units and 1.78 million of the Wii.

In an effort to compete, Microsoft has cut the price of its Xbox console in Japan, Europe and the US.