Sony has fired the latest shot in an intensifying e-book war by slashing prices to undercut rival Amazon's Kindle.

By the end of the month, Sony will begin selling the Reader Pocket Edition, a smaller version of its Reader Touch with a five-inch (12.7-cm) screen. The device will come in three colours and can hold as many as 350 books. In Canada, it will retail for $279. Amazon.com's popular e-book reader Kindle is currently not available in Canada. Sony's entry-level device will retail for $199 US in the United States.

The new American price is $100 US cheaper than the price offered on the entry level Kindle model.

The pricing strategy is aimed at luring new consumers who haven't wanted to shell out for such a device thus far.

Sarah Rotman Epps, a media analyst at Forrester Research, said the Pocket Edition's price below $200 breaks an important psychological barrier.

"This is something that is affordable for the holiday season, and I think that you'll see sales of e-readers outpacing current forecasts," she said.

Her current forecast calls for sales of two million digital reading devices this year; she said a little more than one million were sold by the end of 2008.

She doesn't expect Amazon to rest on its laurels, adding that the online retailer will have to respond to counter Sony's new price point.

Sony has also cut $2 off the price of most newly released titles, to $9.99. Amazon's Kindle Store offers most bestsellers and new releases for $10. The Kindle supports more than 330,000 titles.

The device is entering a small but growing market.

U.S. e-book sales totalled $113 million last year, up 68 per cent from 2007, but still a fraction of the estimated $24.3 billion spent on all books, according to the Association of American Publishers.

With files from The Associated Press