The service will enable users to stream music for free and also download to own.

“Music is an important area for Microsoft. We are looking at launching a music streaming service imminently,” Peter Bale, executive producer of MSN, told the Telegraph. “It will be a similar principle to Spotify but we are still examining how the business model will work.”

Spotify enables free, ad-supported music streaming, or ad-free streaming for a fee of £9.99 a month.

Microsoft will promote its new service through MSN and other parts of the company’s network. The service is likely to feature on the company’s portable Zune media player, and Bale hinted it could also be made available via Xbox Live.

At E3 last month Microsoft also announced plans to offer free music to Gold Xbox Live members through a new partnership with Last.fm streaming radio, which plays home to over 3.5 million songs.

Rival platform holder Sony recently introduced online music streaming service VidZone to PS3 in some PAL territories. The free, ad-supported service launched with 10,000 music videos, and enables users to create a video library and playlists.