The Xbox One will be sold for £399.99 from February 28 in the UK, a reduction from the £429 retail price the console originally sold for since its release in November 2013.
The price cut comes after the Microsoft console has been consistently outsold by rival Sony's PlayStation 4, which remains considerably cheaper at £349.
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Harvey Eagle, marketing director at Microsoft Xbox UK, said: "This is about giving UK gamers the best value that we can. We've already seen that Xbox and PlayStation will both be commercially successful devices... We see this as a marathon, not a sprint."Microsoft said the lower-cost Xbox One will also include an eagerly-awaited new game called Titanfall, which is made by Respawn Entertainment, the studio set up by one of the makers of the hit Call of Duty franchise.
Seth Barton, editor of Expert Reviews, said the price cut was a "canny move" by the US company.
"By knocking £30 off and adding a game into the bundle, Microsoft have destroyed the price differential with Sony, without having to drop their RRP. They can now sit back and wait to see how well it does, and if it does very well, they can add another game into the deal," said Mr Barton."I don't think it's in either company's interest to launch a price war at this point in time. According to Chart-Track, the Xbox One was selling 1.5 less consoles than the PS4 in the first three months since launching. So they were obviously on the back foot and the price was hurting them.""The only problem is that it is likely to annoy lots of people who have already bought an Xbox One, and a lot of them did so because they wanted Titanfall. It is the most anticipated game in all existence right now," added Mr Barton.
Titanfall, a science fiction first-person shooter game, will be made exclusive to the Xbox One, Xbox 360 and PC. The console and games bundle is currently available to pre-order.
The price cut will only apply in Britain, the Xbox One's second biggest-market after the US, where the device will still cost 499 dollars (£300).