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Ultra low-budget laptops such as the Eee PC have traditionally shipped with Linux distributions in an attempt to keep a lid on costs.

However, in recent months Microsoft has stepped up its efforts to have Windows used on such machines, striking deals with Eee PC maker Asus and the OLPC project.

Now the company is prepared to offer all low-cost laptop makers a discount on the Windows XP Home licence.

Microsoft will charge PC manufacturers $26 (£13) to have Windows XP Home preloaded on low-cost machines sold in emerging

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markets and $32 (£16) for those sold in developed markets, according to documents seen by the US magazine, PC World. And manufacturers could get as much as $10 more off of those prices if they are eligible for Microsoft's market development scheme, potentially reducing the price of the XP licence to as little as a few pounds.

The discount is limited to machines with screens no larger than 10.2in, excluding touchscreens, and with hard disks no larger than 80GB.

The low-cost laptop market has exploded since the launch of the Eee PC, with manufacturers such as HP, Elonex and MSI all producing rival devices. Asus alone expects to sell five million of the devices by the end of the year.

Microsoft plans to phase out mainstream sales of Windows XP on 30 June.

Click here to read our review of Windows XP Service Pack 3