Industry watchers say the deal could give a much-needed boost to Microsoft's catalogue of exclusive games.

Rare, based in Twycross in Warwickshire, was behind a number of Nintendo's titles such as "Donkey Kong" for the GameCube console.

Nintendo said Rare titles had become less and less important to its group sales in recent years.

But industry watchers say it could now be a useful part of Microsoft's ongoing battle to pit its Xbox console against Nintendo's GameCube and Sony's PlayStation2.

High premium

Nintendo would not disclose the price of its 49% stake, but reports have suggested Microsoft paid as much as $400m (£258m).

This is considerably higher than the prices previously paid for similar-sized developers, but highlights the increased competition to secure exclusive links with games developers which can make or break the success of a new console.

Games commentators have to date criticised Microsoft's Xbox for its lack of exclusive games titles, with the military action game "Halo" considered the real success.

Exclusive rights

Rare's software for Nintendo consoles had fallen from 9.5% of the group's sales in the year to March 2001 to just 1.5% a year later.

"In looking at the company's recent track-record, it became clear its value to the future of Nintendo would be limited," said Peter MacDougall, vice-president of Nintendo America.

However, Nintendo said in a statement that it will still keep the exclusive rights to all the original Rare titles and franchises, including "Diddy Kong" and "Star Fox".